Despite growth in recent years, Asia lacks faith to pick itself up: HSBC

Firms are apparently afraid of taking risks.

On the question of whether Asia is under-investing or not, an analysis says that perhaps its not so much that the region is doing so, but that it lacks the faith to pick itself up.

According to a report from HSBC Global Research, while investment has powered ahead across the region in recent years, above all in China, a large chunk of this is construction for real estate, both commercial and residential, and, in some countries infrastructure.

By contrast, expenditures by companies on production facilities have actually slowed.

In this, Asia is similar to markets like the US: despite record low funding costs and, in many places, unparalleled profits, firms are often prone to hoarding cash rather than investing it.

Here’s more from HSBC Global Research:

Korea and Japan certainly fall into this category, but the same may also hold increasingly for the wider region.

In China, things are a little more complicated: here the issue is probably that some firms spend too much in industries that already have plenty capacity, while in other sectors not enough is done.

Overall, one reason for this may be “growth pessimism” – if firms suspect that demand in the East and the West will not accelerate appreciably, why take the risk and boost capex?

The trouble with this is that it kicks off a self-feeding cycle: without more investment, growth will not pick up, and with demand disappointing, capital spending languishes.

Therefore, it’s perhaps not so much that Asia under-invests, but that it lacks the faith to pick itself up.