>WHO'S BUYING ASIA'S EXPORT (HSBC)

Tough, tough question. Asian exports have been roaring back, almost touching their previous peak. But, with Western shoppers having seemingly hit the limits on their credit cards, where are all these goods now headed? Vital stuff: it drills to the core of the de-coupling debate. Our answer: yes, shipments to the US have rebounded, but the recent kick for Asia’s trade cycle is coming from regional demand. What’s new, for example, is that more and more goods shipped to China now stay there, rather than being passed on to consumers in advanced markets. Two points to make. First, there is some evidence of export decoupling. Second, if shipments to the West indeed bounce back, even if only temporarily, we’ll have undoubtedly an inflation problem.

Our first chart cuts right to the heart of the matter. Here, we show the volume of imports in the US, the Eurozone, and emerging Asia. European demand, evidently, is not driving Asia’s export cycle, currently. The United States, on the other hand, has seen a strong rebound in import volumes since the depth of the crisis. But, even here, the overall level of imports remains some 12% below its previous peak. Contrast this with Asia: imports in the region, excluding Japan, are now over 6% higher in volume terms than ever before.

At first glance, this points to Asian demand driving most of the regional trade recovery. But, here is the tricky thing: intra-Asian shipments reflect to a large extent supply chain trading, with goods being sent from, say, Seoul, through Taipei, to Shenzhen, before ultimately ending up in a US mall. Thus, as US imports pick up, intra-Asian trading kicks in as well, and even more so, because multiple Asian destinations are required before final sale in the West. Technically, the extensive supply chain implies that intra-Asian trade has a high beta with respect to G2 demand changes. Is this what’s driving the rebound in Asian imports?

To read the full report: ASIA'S EXPORT