Tablet vs. Notebook; Inflation vs. Liquidity

On May 16, in a ballroom of the Hong Kong Four Seasons Hotel, a roomful of investors will take their seats and, as best as they can, try not to be terrified. That day they'll be receiving advice on 2011 financial strategy from Bank of America-Merrill-Lynch, one of the American banks that crawled from the wreckage of the 2008 financial crash.

Representatives from BofA-Lynch's fixed income and commodities desks, who are hosting the meeting, will be expected to present the Asia-based investors with "a strategy that discounts regional issues like Japan's earthquake, emerging Asia's worrying inflation and interest rate hikes, along with rising oil, the end of QE [Quantitative Easing, or interest rate cuts], and the deteriorating sovereign outlook in developed markets." This, according to the invitation for what's billed as "The Global Macro Forum – What's Next?"

For electronics manufacturers, discussions of broad trends like those can be viewed as a luxury, compared to more immediate consumer trends. That's understandable. The thing that keeps a Shenzhen factory owner up at night is whether a middle-class American with $500 is going to the Apple store for an iPad, or to Best Buy for a Windows laptop. Those consumer decisions -- not long-term economic trends or the price of oil -- can seem to affect the factory's fortunes more directly.

But this month, the macro issues may finally be getting big enough to overshadow consumer trends. Wage increases in China have given way to a generalized rise in costs across the region, and rising shipping costs (related to high oil prices) are transforming, from a cyclical cost of doing business, to permanent shifts in the economics of Asian manufacturing.

India's finance minister, Pranab Mukherjee, has called for international coordination in anti-inflation efforts. "Over the last four years," he told the Hindu Business Times, "we have moved from a fuel crisis to a food crisis to a financial and economic crisis and now, we are back to a food and fuel price crisis."

The question used to be which country had the right mix of resources, labor, and infrastructure. Now the first two have become nearly impossible to predict, and the last, impossible to price -- trapped in currency and commodity price swings. Last week, the US dollar hit a three-year low against the euro and similar lows against the yen and Australian dollar.

So even that $500 laptop isn't really $500 any more, and the Chinese or Malaysian manufacturer is finding the value of dollar-based supply contracts hard to predict. The weak US currency makes American goods cheaper overseas; the Institute for Supply Management reports that US manufacturing grew in April for the 21st straight month. Twenty years ago, would anyone have predicted that, by May 2011, Asia would be competing with the United States in, of all things, manufacturing.

So in Hong Kong, as members of the Asian business community sit down with the Wizards of Wall Street, the conversation will be shifting from "tablet vs notebook" to "inflation vs. liquidity." It's not a conversation that will affect how device makers will do business this summer. But it may tell us whether they'll be in Asia in 10 years.