The Federal Reserve decision to continue with Quantitative Easing is a relief for emerging markets in general and Asian markets in particular. Frederic Neumann, HSBC’s co-head of Asian Economic Research, tells the FT’s Josh Noble that when it ends the worst affected markets may be hit hard but further support may be on offer from Japan’s monetary stimulus and an economic rebound in China.
A disappointing economic policy speech by Japanese prime minister Shinzo Abe hit the Nikkei hard on Wednesday – and as it slumped so did shares in key Asian emerging markets.
It’s not that Abe delivered any nasty shocks. Simply, that the proposals he made for business deregulation seemed very modest. With sentiment already weakened by concerns about the possible end of the US Fed’s QE, it didn’t make much to prompt the latest sell-off. The Nikkei closed 3.8 per cent down. The MSCI Asia ex-Japan index traded around 1.3 per cent lower.
Southeast Asia’s credentials as the next great frontier for economic growth, spurred by young populations and cautious optimism over planned structural reforms is one this year’s big emerging market themes. Just look at the Philippines, which notched up 7.8 per cent growth in the first quarter, even beating China.
But for private equity, the region is proving a tough nut to crack. Last year, according to consultancy Bain & Co, was “underwhelming”. Deal value fell by 16 per cent to $4.9bn, the number of deals dropped to just 32, from 39 the year previously.
When is a BBB- borrower actually a AA+? No, this isn’t financial trickery of the kind made famous in the US subprime fiasco (and perhaps repeated in China in 2012). It’s a new facility offered by the Asian Development Bank to promote cross-border borrowing within Asia.
Under the scheme, the ADB-backed fund guarantees the debt of a corporate issuer, and effectively lends out its rating, regardless of the company’s actual rating. It’s been a year in the making, but finally the scheme has broken the seal.
With concerns about the US Federal Reserve possibly cutting its stimulus programme hitting American markets, it was little surprise to see Asian risk assets getting a battering on Thursday.
But the impact was compounded by unexpected moves from the Chinese authorities to curb the property market and reduce to reduce liquidity. As a result the MSCI Asia ex-Japan index slumped by 1.8 per cent, with China leading the way and Shanghai closing down 3 per cent.
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.
Frederic Neumann, HSBC’s Hong Kong-based economist, has been visiting clients in Europe where the view, apparently, is that Asia is getting dull, offering few obvious risks and little imminent reward. Nobody likes their own patch to be seen as unexciting, of course, but in a note to clients on Monday Neumann presents four reasons why investors should not underestimate Asia’s ability to surprise.