Salient to Investors:
Asia’s role as the world’s growth engine is waning as economies across the region weaken and investors pull out billions of dollars in favor of nascent recoveries in the US and Europe.
Economists forecast Malaysia will post its second straight quarter of sub-5 percent growth this week.
Stephen Jen at SLJ Macro Partners said the eye of the storm is directly above emerging markets and could be serious for Asia.
BlackRock Investment Institute said $155.6 billion poured into developed-market equity ETPs in the first 7 months of 2013: $102.4 billion into North American funds, $28 billion into Japan, and $4.3 billion into Europe, while $7.6 billion flowed out of emerging-market funds.
Shane Oliver at AMP Capital Investors said the pendulum is swinging back in favor of the advanced countries: this happens once a decade or so when you see a turn in relative performance. Oliver said Asia has entered a tougher, more difficult period and money continues to flow back to Europe and the US. Oliver said Asia will still be a stronger part of the world than the US or Europe but compared to people’s expectations is likely to come in a little bit lower than expected.
The IMF in July cut its forecast for growth in 2013 in developing Asia to 6.9 percent, cut its global growth forecast to 3.1 percent and projected advanced economies would expand 1.2 percent in 2013. Economists expect the Fed to taper in September. The median economist expects Malaysia growth of 4.7 percent in Q2, its slowest rate since September 2009.
Nitin Mathur at Espirito Santo Investment Bank said the pain is going to be in the emerging markets, and expects sectors with higher valuations such as consumer goods to suffer the biggest declines. Mathur said the problems in India are not temporary blips but much more serious and will take a lot of effort to get resolved.
Krystal Tan at Capital Economics said Thailand’s private-sector credit as a share of GDP has increased significantly in recent years raising concern about financial stability.
Freya Beamish at Lombard Street Research is seeing a turning point, and says China’s competitiveness has been hurt by labor costs that are 30 percent too high and the region’s clouds are already here.
Indranil Pan at Kotak Mahindra Bank said the emerging Asia story is crumbling and the dollar is once again king, and India’s slump is worse than elsewhere in Asia because it failed to carry out long-overdue structural changes to the economy.
Richard Jerram at Bank of Singapore says the market declines reflect overly ambitious expectations rather than fundamental weakness in the economies. Jerram said there is a good structural story based on the underlying domestic demand, and what you see at the moment is reaction from expectations, unrealistically positive 12 months ago, becoming more realistic.
Shuichi Hirukawa at Mizuho Asset Mgmt said Asia still has potential in the next 3 years or more, but shorter term business momentum is slowing.
Jim O’Neill said some Asian countries, especially India, have their own significant domestic challenges, but China is slowing primarily to improve its growth model and at 7-7.5 percent annual growth is still delivering $1 trillion nominal GDP. O’Neill said Japan is looking better than it has done for a very long time.
Kaushik Basu at the World Bank said the slowdown in economies such as Indonesia and Thailand is part of a very, very global weakness, while the US recovery was so slow that even the slightest pick up is looking like a pick up. Basu said the Asian situation is no worse and, if anything, Asia is probably better off than the rest of the world.
Kiekie Boenawan at PT Schroder Investment Mgmt Indonesia sees the drop as an opportunity to buy stocks that had been overpriced such as banks and consumer shares.
Sanjay Mathur at RBS said in July that southeast Asian consumers have taken on much higher debt in the last few years, with the largest increase in Malaysia, where household debt increased by 20 percent of GDP between 2008 and 2012.
Edward Teather at UBS said there is a feeling that the rest of the world is getting a bit better and Asean had its burst of credit-enhanced growth and it’s raining already.
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