The UK investment community has had a long-standing love affair with the Far East and the arguments have been all too familiar: large populations with aspirations and a strong work ethic; high savings ratios; commercial flare. The trouble is that even though all these factors are present they no longer work. So where did it all go wrong?
Dr Mahathir Mohammed, Malaysia's Prime Minister, recently extolled the virtues of his country. He likened the strong growth achieved to a river in flood. The rocks beneath the surface were concealed by the floodwater. In this case the rocks appear to have been profligate lending, skill shortages and poor management. The speed at which Far East growth hit the buffers was quite alarming. And yet, this time last year, no one was expecting it.
Worries over the likely knock-on effects have been enough to generate a little introspection in the US market. Prices there have retrenched by some 10 per cent, but there is still little sign of panic in Wall Street. Indeed, the reaction in North America and Europe seems more like indifference. But does the end of a period of high growth really matter?
Much depends upon what happens next. That world growth will be affected is undoubted. There is now much less money around the Pacific Rim and demand for manufactured goods must decline. Many countries must be hoping that they can export their way out of trouble. Indeed, given the devaluations, we can expect cheap Asian goods on offer here before long. That does not augur well for some industries, both in Europe and America.
Interestingly, it is the pace of growth in South-east Asia that helped create the problem. In some areas, skill shortages drove up wages and reduced competitiveness.
One of the aspects of these recent developments has been to highlight the over-capacity in many areas of manufacturing production. Improved techniques, better inventory management and the continuing forward march of information technology have brought great changes. Still, if you can't afford to spend the money, the choice is between stockpiling goods and closing whole production lines down. The latter seems inevitable. The worry must be that social unrest could follow.
The message so far for the developed world has been, don't panic but a little bit of panic may now be appropriate. And we all need to keep our fingers crossed that things on the other side of the world do not get too much worse before they get better.
Brian Tora is chairman of the investment strategy committee at Greig Middleton, stockbrokers.