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.”
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day
Thousands of parents in Singapore are furious after a Cordlife Group Ltd (康盛人生集團), a major operator of cord blood banks in Asia, irreparably damaged their children’s samples through improper handling, with some now pursuing legal action. The ongoing case, one of the worst to hit the largely untested industry, has renewed concerns over companies marketing themselves to anxious parents with mostly unproven assurances. This has implications across the region, given Cordlife’s operations in Hong Kong, Macau, Indonesia, the Philippines and India. The parents paid for years to have their infants’ cord blood stored, with the understanding that the stem cells they contained