Taking The Euro Crisis In Perspective

It is daunting and mortifying trying to take into account whats happening in Greece, and then Italy... and I am sure Spain is next. Markets will be volatile in the coming weeks and months. The big TARP-like fund is critical to stabilising the region, so hearsay and rumours about some disagreements over it will always spook the markets.




However, we also should know that the EU have its backs to the wall. If they let Greece out of EU and the euro, that will trigger an avalanche because nobody will offer any haircuts anymore - lending rates will soar for troubled European nations and their sovereign bonds will plummet, forcing the troubled ones to get out as well ... the consequences are too dire to reverse everything.


The disagreements still have a long time to go to be ironed out as the fund would only come into effect mid-next year, so they have a lot of time to agree to disagree for sometime. Its just grandstanding, each side trying to get the "safest" deal for their governments and affected corporations.



Hence we have to learn to live with the volatility. But we also have to find out for ourselves just how dire the situation can get. To get a better perspective, lets look at trading between China and its major partners (annually):
imports from HK $10bn, exports to HK $227bn (51.3%) 
imports from South Korea $143bn, exports to South Korea $72bn (24.5%)
imports from Japan $183bn, exports to Japan $125bn (21.8%)
imports from Australia $62bn, exports to Australia $29bn (22.5%)
imports from the US$106bn, exports to the US $296bn (14.9%)
imports from the EU $176bn, exports to the EU $325bn (13.9%)
imports from Malaysia $25bn, exports to Malaysia $52bn (17.9%)
imports from India $22bn, exports to India $43bn (11.4%)
imports from Brazil  $40bn, exports to Brazil $26bn (14.9%)
imports from Singapore $26bn, exports to Singapore $33bn (11.1%)



If you take the time to go through the figures, you will find that China is a much bigger partner for most nations. Yes, the EU is important but not terribly so. It would be devastating for Asia if problems similar to the EU-crisis were to hit China.


Hence we can surmise that China may take a minor hit from the current situation but there are plenty of others to take up the slack. Look at Brazil, its importing a lot more there than exporting to Brazil, and you can extrapolate that for the rest of Latin America, which is to say Latam will be taking up a lot of slack for the next few years to keep China chugging along.



The percentage figure in parentheses are the percentage of trade with China by that specific country. Without China, HK is basically kaput, but Japan, South Korea and Australia are potential big victims in a China calamity.



In that perspective, we may be able to reassure ourselves a bit more that most of the rest of global markets have "already fallen in sympathy" with the EU crisis. Any further shocks from the EU will tend to affect EU markets a lot more than the rest.