How worried should you be when the US Federal Reserve goes ahead with its first interest rate hike? After all, following years of close to zero policy rates and three rounds of quantitative easing, this will be a significant change in policy.
Financial markets do not appear too concerned. One could even say that they are being complacent. Nevertheless, the usual commentators are once again stating that Fed hikes will bring the end of the world and of emerging markets.
So who is right, the complacent markets or the doomsayers? We think neither. Read more
By Gordon French, HSBC
If Asia’s emerging markets are to avoid the middle income trap, they need to create foundations for the next phase of growth: they need to invest in infrastructure.
In the early stages of development, moving a worker from the land to a factory quadruples their value-added contribution to the economy on average. Much of Asia’s extraordinary growth to date has been underwritten by this one-off transition, but the windfall gains of rapid industrialisation are starting to decline and if the region is to continue on the road to prosperity it needs to find ways to boost productivity and encourage new economic activity. Read more
Economists expect the drop in global food prices to help keep inflation low across emerging Asia over the next year, benefiting consumers and allowing central banks to keep monetary policy loose.
The International Monetary Fund estimates that global commodity prices are 8.3 per cent lower than at the start of the year. This can have some complicated effects, with some winners and losers within the same country. Read more
“When eating an elephant, take one bite at a time”, US Army officer and Vietnam veteran Creighton Abrams once said.
In his new book, The Rise of the New East, Ben Simpfendorfer does just that. His elephant is “The East”, the group of almost 50 emerging markets ranging from Turkey to China that is home to well over half of the world population.
Simpfendorfer gives his topic a thorough treatment. While his insights seem logical and intuitive, taken together they give an impressive oversight of into key trends shaping the region. beyondbrics noted five insights that particularly stood out. Read more
The 7th in our series of guest posts on the outlook for 2014 is by Frederic Neumann of HSBC
Investors in emerging Asia may be forgiven for looking ahead with a little trepidation. The twin engines of the region’s growth in recent years – cheap money supplied by the US Federal Reserve and China’s soaring demand – are beginning to sputter. The risks that tapering entails were already put on powerful display in mid 2013. On the Mainland, structural reforms, while urgently required, will curb any potential rebound. Plenty to keep markets occupied. Read more
There is much worry among emerging market investors – and policy makers – that it is 1997 all over again. EM currencies have plunged since May. Investors have piled capital into these countries since 2008 and some now fear capital will rush the other way.
Is it 1997 redux? Not in East Asia, according to the World Bank’s East Asia And Pacific Economic Update: most economies here “are in a relatively strong position to face this shock, with significantly lower vulnerabilities than in the run-up to the 1997–98 Asian crises”. Read more
Or, when China sneezes…
China can’t go on growing at over 7 or 8 per cent forever. But as the world’s second biggest economy starts to slow, what will be the effect on the other developing economies of Asia? The Asian Development Bank has issued an update to its economic outlook, and aside from the predictable lowered forecast to headline growth, it spells out some of the knock-on effects of China’s slowing growth to the rest of the region. Read more
Another stimulating note from the always-readable Frederic Neumann at HSBC in Hong Kong, titled An inconvenient truth. In it, he looks at the relation in Asia ex Japan between credit on one side and productivity and growth on the other.
The results are more disturbing than inconvenient. Read more
A quick look at manufacturing purchasing managers’ indices for Asia this year shows a worrying trend. From a positive start to 2013, the numbers for the six countries tracked by Markit Economics/HSBC are gradually slipping down to the 50 mark separating expansion from contraction, and below.
Source: HSBC, Markit
Snap! The Asian Development Bank has followed the IMF in nudging down its numbers for developing Asia. Both institutions have revised their growth forecasts for the region down the same 0.3 percentage points for both 2013 and 2014 in their July updates to their main April outlooks.
It’s not a surprise: China’s slowing growth has economists rejigging their spreadsheets week by week. The question is: what’s changed? Read more
By Jean-Pierre Lehmann of IMD
Many of us are unlikely to mourn the departure of Mohamed Morsi from Egypt’s presidency. Though to some his forced exit may appear a blow to democracy, to others it heralds the termination of what was becoming a fundamentalist Islamist regime. Egypt, it seems, will not become another Iran – or at least not immediately.
But it is fair to ask: what on earth is going on in the Arab world? It is going in the opposite direction to much of the planet. Read more
By Daniel Hui of JPMorgan
“It is said that enlightened governments… do not mobilise when there is no advantage, do not act when there is nothing to gain, do not fight when there is no danger.” – Sun Tzu
Markets have been captivated by the prospect and imagery of a “currency war” following Japan’s dramatic shift in monetary policy, and the recent 20 per cent depreciation of the yen. The narrative goes something like this: The sharp devaluation of the Japanese yen will be the casus belli which will provoke retaliatory devaluations by other Asian economies in self-defence.
All very colorful, dramatic and scary, to be sure. But to-date this is purely hypothetical, and likely to remain so. Read more
Surprise, surprise. When it comes to words and actions of big companies, yet again we find that rhetoric belies reality – this time courtesy of The Economist Corporate Network.
The Economist group’s emerging markets advisory arm compiles an annual survey of leading corporate executives on their attitudes and investment patterns in Asia. In its report, Investing in an Accelerating Asia?, the group found that investment in Asia by global multinational corporations is lagging the expectations, forecasts and optimism voiced by their top executives. Read more
As budget negotiations in Congress drag on towards the end of year deadline, questions are being asked about the global ripple of the US falling off the so-called fiscal cliff.
Should Asia investors be losing sleep over it? Read more
It is hardly surprising to see mixed economic views of a country or region. But these days, Asia has become a forecasters’ chop-suey of tasty and unpalatable tidbits.
While it boasts growing internal markets, strong capital inflows and still-impressive annual growth among some economies, the region remains vulnerable to global slowdowns, the whims of western central banks, natural disasters and inadequate regional co-operation. Among the growing stream of mixed messages on the region’s trajectory came the United Nations Economic and Social commission for Asia and the Pacific, launched on Friday in Bangkok. Read more
Robust domestic demand, the rise of the middle class and healthy corporate balance sheets are reasons why southeast Asia is being talked up as the last man standing in an otherwise anaemic global economy.
But Thiam Hee Ng, a senior economist at the Asian Development Bank, has sounded a rare note of caution on the region. He points out four factors that should give the boosters pause. Read more
Piyush Gupta, chief executive of DBS, talks to the FT’s Jeremy Grant about Chinese non-performing loans, India’s urgent need for political reform and the booming economies of southeast Asia.
The conventional wisdom for the past six months has been that south-east Asia is pretty much the last man standing in the global economy.
Thailand, Malaysia, Indonesia, the Philippines and Singapore have delivered decent growth, thanks to strong domestic demand and, even as the eurozone crisis and China’s deceleration have buffeted them.
But the region may be starting to slow. Read more
By Udayan Chattopadhyay of Ergo
The US’s decision to suspend some key sanctions against Myanmar is the latest and perhaps most prominent endorsement received by that country’s new quasi-civilian regime.
Global interest has surged, due to Myanmar’s vast untapped natural resources, underexploited agricultural sector and huge underemployed labor force. While there is justifiable excitement – the IMF expects 6 per cent economic growth this year – those new to Myanmar will find that it is hardly virgin territory. Read more
The deep summer lull of the markets has come early this year as uncertainty reigns and the global economy continues its shuddering slowdown. Bank of England governor Mervyn King said on Thursday night that economic conditions as seen from the UK had further deteriorated markedly in just the past four weeks.
But while he and others – such as BlackRock’s Peter Fisher – debate the usefulness of further monetary easing in the west to chivvy things along, Frederic Neumann at HSBC reckons that in emerging Asia, it is fiscal firepower that provides the best defence – unless that is you are in India or perhaps Malaysia. Read more