Interesting articles: Bubbly Bull, a Different Japan and more on JGBs

I found some interesting articles in this week’s issue of The Economist magazine discussing key issues for these challenging times. In “A developing bull market,” the author points to the potential for a bubble to be created in emerging market debt. Jerome Booth, fund manager of Ashmore Asia Fund, considers such a bubble to be out of the question. He believes in a secular shift in favour of developing markets. While a weak US dollar reflects this capital movement, considering the rising share of global GDP amongst emerging markets and their relatively healthy fiscal condition, it’s no surprise to see demand for emerging market debt gathering momentum. I discussed in Bubble Mania Beginning? the potential for an asset bubble developing in China but a bubble in emerging market debt seems to be more fitting for the new generation of risk attentive investors…

In the “Parallels between Japan and the West: Same chords, different tune,” the author outlines the similarities between Japan, the US and Britain post an asset bubble collapse in terms of financial balance developments. The governments in all countries are pressured to run up massive fiscal deficits to finance the restructuring and shift in private sector and government savings. While similarities can and will be drawn, the difference goes deeper than a balance sheet for Japan. In my post, Japan: A Country Lost, I argue that while most critics have focused on policy errors in the case of Japan’s lost 2 decades, the real problem is the failure of the Japanese business model.

The article, “Tackling Japan’s debt: A load to bear,” points out the limited risk of Japan defaulting anytime soon given 93% of Japanese government debt is held by Japanese institutions loyal to Japan among other reasons. What was interesting to read was the relatively low-level of interest payments for Japan compared to the US, Britain in Euro area. The problem with Japan is there seems to be no end in sight to the ballooning fiscal debt burden. As the Chief Economist of Deutsche Securities in Japan writes “The most realistic path for the Japanese economy is not a crash but a sustained decay or hibernation.” I would lean towards “sustained decay” for Japan, something that started 20 years ago.