Asia’s role as the world’s growth engine is waning as economies across the region weaken and investors pull out billions of dollars.
The Indian rupee fell to a record low yesterday, Thailand is in recession and Indonesia’s widest current-account deficit pushed the rupiah to its lowest level since 2009. Chinese banks’ bad loans are rising and economists forecast Malaysia will post its second straight quarter of sub-5 percent growth this week.
The clouds forming in Asia as liquidity tightens and China’s slowdown curbs demand for commodities and goods are fueling a selloff of emerging-market stocks, reversing a flow of money into the region in favor of nascent recoveries in the US and Europe. Emerging markets from Brazil to Indonesia have raised borrowing costs this year to try to aid their currencies as the prospect of reduced US monetary stimulus curbs demand for assets in developing nations.
“The eye of the storm is directly above emerging markets now, two years after it hovered over Europe and four years after it hit the US,” said Stephen Jen, co-founder of hedge fund SLJ Macro Partners LLP in London and former head of foreign-exchange strategy at Morgan Stanley. “This could be serious for Asia.”
Of the US$155.6 billion investors poured into developed-market equity exchange-traded products in the first seven months this year, North American funds received US$102.4 billion or 65.8 percent, according to BlackRock Investment Institute. Japan attracted a record US$28 billion, while Europe-focused funds got US$4.3 billion. In contrast, US$7.6 billion flowed out of emerging-market funds.
“The pendulum is swinging back in favor of the advanced countries,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd, which oversees about US$130 billion. “It’s one of these things that happens once a decade or so when you see a turn in relative performance. We’ve entered a tougher, more difficult period” for Asia.
The IMF last month cut its forecast for growth this year in developing Asia by 0.3 percentage points to 6.9 percent.
In the past three months, the MSCI Asia Pacific Index has fallen 7.7 percent, compared with a 1.2 percent decline in the Standard & Poor’s 500 Index and a 1.6 percent drop in the STOXX Europe 600 Index. Signs of a stronger US economy may prompt the US Federal Reserve to begin paring its US$85 billion in monthly bond purchases as soon as next month.
“We are seeing a turning point,” said Hong Kong-based Lombard Street Research economist Freya Beamish said, adding that China’s competitiveness has been hurt by labor costs that are 30 percent too high. “China’s seeing flat to falling growth on our estimates, so the region’s clouds are already here.”
Sentiment is also being subdued by the prospect of a decline in US stimulus, money that often finds its way to export-based countries in payment for goods.
Investors will be looking for clues on how quickly the Federal Reserve will trim its US$85 billion in monthly asset purchases when the minutes of the Federal Open Market Committee’s meeting last month are released today.
One bright spot is Japan, which has seen its economy bounce back on Japanese Prime Minister Shinzo Abe’s fiscal and monetary stimulus. The Topix stocks index has risen 32 percent this year.
Abe has yet to show that he can sustain the recovery by restructuring company and labor laws and taming the nation’s debt, which topped ¥1 quadrillion (US$10 trillion) in June.
“Asia still has potential in the next three years or more, but in the shorter term, momentum for business is slowing down,” Tokyo-based Mizuho Asset Management Co senior fund manager Shuichi Hirukawa said. “Investors may become more cautious.”
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)