The Investment Column: UK shares will suffer Asian flu

Which British companies have the most to lose from the Asian crisis? Given that Far Eastern markets first began to wobble in the summer, investors may think that this question is about six months too late. Certainly, shareholders in companies as diverse as HSBC and Rio Tinto have already seen the former Asian tigers chew more than a fifth off the value of their investments.

But that doesn't mean the issue won't rumble on. Much as with the strong pound last year, the lingering effects of the crisis look set to become one of the big investment themes of 1998. Indeed, Asian turmoil looks set to take the place of factors such as Diana's death, the strength of sterling, and the El Nino weather system as the leading excuse for profit warnings.

Much depends on what happens to Asian markets over the coming year. The various rescue packages on offer may still manage to avert economic collapse, but the crisis could also deepen. Hong Kong abandoning its currency peg to the dollar would be particularly bad news for companies with large investments in the former colony. Either way, economic growth in the Far East is going to be a lot slower than expected 12 months ago. And that has far-reaching implications.

The companies with large direct exposure to Asia are well known. HSBC and Standard Chartered will suffer slower asset growth, and will also have to sharply increase bad loan provisions. Cable & Wireless, through HongKong Telecom, will also see less growth than it had previously expected. Inchcape, the car importer and bottling group, derives almost half of its profits from the region. Not surprisingly, share price falls for these groups have been dramatic.

Other, more dynamic effects are less easy to quantify. A company may only derive a small proportion of its profits from the Far East. But if those profits have been growing very quickly, the slowdown there could have a disproportionate effect on a company's overall profit growth. This effect is particularly pronounced in the case of Rio Tinto, the world's largest metals group, which has seen its share price fall by a quarter in the past six months. Although its sales are spread across the world, most of its growth is in Asia.

Companies in commodity industries are particularly vulnerable, even if they do not have direct exposure to the region, because over-supply in the Far East will prompt a price slump which could quickly spreads around the globe. That puts British Steel, ICI (through its remaining bulk chemical interests) and paper makers such as Rexam on the danger list.

Firms selling large capital goods to Asian countries are clear casualties of the crisis, especially if the projects depend on government cash. Construction orders could also dry up, and existing projects could be shelved. So watch out for groups like GEC, which through its (soon to be demerged) GEC-Alsthom joint venture is involved in large power engineering projects in the region.

Consumer goods are more complicated. Shares in luxury brands such as Gucci have taken a pasting as investors anticipate that the crisis will hit Asia's affluent and fashion-conscious consumers' pockets. Although Britain is short of prestigious fashion brands, other goods will suffer. Music groups EMI and Polygram, which have benefited from booming CD sales in Asia, have already seen a slowdown.

By contrast, Unilever claims that crisis has yet to hit sales in the region. The consumer goods giant has invested heavily to achieve its target of making 50 per cent of its sales from emerging markets early in the next century. However, if Asian consumers do stop buying ice cream bars and washing powder, Unilever will be a big casualty.

The most curious case, perhaps, is that of British manufacturers. With a few exceptions, they have escaped the fallout by virtue of their relatively low exposure to the region. Some, like Siebe, even reckon local currency devaluations will make acquisition targets more affordable.

The danger, however, is that cheaper currencies give Asian exporters a valuable competitive boost in their quest to expand their European markets. This effect may be even more pronounced if demand in the Far East falls away, releasing unsold products into Western markets. Although the strong pound has already done a lot of damage to engineering share prices, a wall of cheap Asian imports flowing into Europe could dash any hopes of recovery.

So although Asia will fade from the headlines over the coming year, that doesn't mean the full effect of the crisis has been felt. Long after the worst of the turmoil is over, UK share prices will still be coming down with Asian flu.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
A still from a scene cut from The Interview showing North Korean leader Kim Jong-un's death.
tech
Voices
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Bianca Miller and Katie Bulmer-Cooke are scrutinised by Lord Sugar's aide Nick Hewer on The Apprentice final
tvBut Bianca Miller has taken on board his comments over pricing
News
in picturesWounded and mangy husky puppy rescued from dump
News
newsAstonishing moment a kangaroo takes down a drone
Life and Style
Duchess of Cambridge standswith officials outside of the former wartime spy centre in Bletchley Park
tech
News
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

SThree: Graduate Recruitment Consultant

£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'