Asia looks more resilient to capital flight as the US Federal Reserve departs from its easy-money strategy than during last year’s taper tantrum, and better placed to weather the coming storm than other emerging markets.
The looming end of the Fed’s quantative easing expected late October has investors on edge. Most pundits expect the Fed will start to hike rates mid 2015.
As a result, a great sucking sound could be heard throughout Asia in recent weeks. Strong fund flows into Asia reversed as investors bought Treasuries and the US dollar. Protests in Hong Kong and China’s weakening property market sped up the rush to exit.
Last year, when the Fed first hinted it would reduce its bond-buying programme, foreigners fled Asian debt and offshore bond issuance dried up. About $19.5 billion flowed out of the top 20 emerging-market debt funds in the 12 months ending in May.
This time around foreign investors hold less Asian debt and the US yield curve is steeper than a year ago. Moreover, new governments in India and Indonesia have embarked upon meaningful structural reform (see our cover story, page 22, and our Bond Market Guide 2014, page 14).
Other Asian countries have also been fortifying themselves against another taper tantrum. The Philippines raised rates twice this year and Malaysia hiked in July.
Indonesia, one of the most vulnerable to capital flight, has been bulking up its balance sheet by issuing a $4 billion sovereign bond and a $1.5 billion sukuk this year. To be sure, Indonesia is grappling with weaker commodity prices, which are weighing on the economy.
Asia does have an advantage over other emerging markets in Latin America and EMEA: the anchor of fast-growing China, the government is still aiming to expand GDP by 7.5% this year. Sturdy economic growth will give Asia’s policy-makers room to raise interest rates further, limiting any downside currency pressure, while last year’s turbulence also moderated a build up of credit excess.
Offshore debt issuance will likely continue, driven by governments looking to fund ambitious infrastructure plans and banks issuing Basel III compliant debt.
Issuers will need to be nimble and seize openings in choppy markets . Countries governed by quality policy management have a chance to shine.
About FinanceAsia Magazine
Established in 1996, FinanceAsia is the leading publisher of financial news in the Asia-Pacific region. Our combination of print and online products provide the latest news, analysis and insight into Asia’s financial markets.
Published monthly from our office in Hong Kong, FinanceAsia magazine provides our readers with the latest financial trends, interviews, features and investigative reports. The publication has a readership of key decision-makers at corporations, governments, investment and commercial banks, institutional investors, asset managers, brokers, traders and financial intermediaries.
Our regular sections include:
We look at the key data behind a topical theme in Asian finance, showcased with an array of graphs and tables.
A monthly opinion column from the FinanceAsia editorial team. We provide our thoughts on a topic making the headlines.
Deal of the Month
Our regular two-page spread with its signature artwork and in-depth analysis examines the equity, debt or M&A deal that we feel has had the biggest impact on the Asian capital markets that month.
For company CEOs and CFOs, what investors think is a critical concern, and in this column we help them understand just this. Each month we speak to a Chief Investment Officer of a top fund and outline their views on corporate governance, what stocks they like and where they expect to generate the best returns.
A monthly opinion piece from a respected author or commentator on Asian business, finance or economics.
People on the Move
Here we summarise the key hires, fires and moves at the region’s banks, highlighting at least one major move each month.
We examine the major primary markets deals of the month and comment on the quality of the debt or equity transaction and the secondary market performance.
The Arts of Finance
A light-hearted look at investment opportunities surrounding the arts business in Asia.