Weak phone upgrade cycle

Effect casts shadow over Asia’s trade performance this year

HONG KONG: The rush to upgrade smartphones may be ebbing, prompting economists to dial back the outlook for Asian exporters.

Early indications, including signs of disappointing orders, point to a mixed reaction to the latest iPhones, hurting the share prices of Apple Inc’s Asia-based suppliers.

Given that smartphone improvements help power demand for electronics components from supply-chain powerhouses such as South Korea, Japan and Taiwan, a weaker upgrade cycle would have macro-economic implications too.

The weakening “smartphone effect” is not the only reason economists are sensing a peak in this year’s better-than-expected trade performance in Asia.

Other threats include forecasts that China’s economy is slowing again and the shift by some developed-world central banks away from years of extraordinarily easy money.

“It feels like we are toward the tail end of the upswing at a time, ominously, that the other key driver of Asian exports – China – is showing signs of resuming its economic slowdown,” said Rob Subbaraman, chief economist for Asia ex-Japan at Nomura Holdings Inc in Singapore.

The smartphone cycle and firmer Chinese growth were among reasons Asia defied predictions of trade wars, deflation and tepid demand to instead see increased exports of everything from cosmetics to semiconductors.

In the year-to-date through August, the region’s exports have been the strongest in US dollar terms since 2011, according to economists at Morgan Stanley.

There is no precise measure of the impact of smartphone production on Asian trade, but economists say it is sizable. Take South Korea: Exports of semiconductors jumped 57% in August to a record US$8.8bil, owing to the release of new phones and increases in DRAM capacities. That was about 18.6% of the country’s total exports for the month.

There are other signs that Asia’s trade recovery is starting to cool. China’s year-to-date exports are up 7.6%, but growth slowed to 5.6% in August and imports are showing signs of consolidating.

And some analysts say South Korea’s impressive export growth rates could soften in the coming months as a weak performance in 2016 is no longer the base for comparison.

Slipping activity at major Asian ports, including hubs such as Busan and Shenzhen, are among indications that a recovery in the global container trade may have peaked, according to economists at Bloomberg Intelligence.

A new Asian trade tracker from Goldman Sachs also registered slower export momentum in August, and a broad deceleration across sectors, with the exception of semiconductors. Imports are also weakening. A recent moderation in commodity prices has played a part, Goldman said in the report.

To be sure, few are predicting trade will slump, particularly in the near term. Klaus Baader, chief AsiaPacific economist at Societe Generale SA, said Asia’s trade recovery went beyond smartphones and China.

New drivers would include an expected acceleration in business investment, especially in electronics and software, which would have knock-on consequences for Asian manufacturers, Baader said.

“There is a lot more to the Asian electronics trade than just the iPhone,” he said. — Bloomberg