Asia’s factories got off to a strong start this year, with manufacturing activity in many countries gaining momentum and hitting multiyear highs as global demand for high-tech products remained strong.
“The pickup in manufacturing activity does not necessarily have to reflect in domestic inflationary pressures as they include non-tradeable sectors,” said Trinh Nguyen, senior economist at Natixis in Hong Kong.
“[Asian] currencies have been strong, and there is still some weakness in domestic demand, particularly in the aging east Asian countries such as Singapore and South Korea,” Nguyen said.
This would make Asian central banks generally less aggressive than the US Federal Reserve, with Malaysia and the Philippines, where domestic demand has been strong due to pre-election spending in the former and accelerated infrastructure investment in the latter likely to lead the way in rate hikes, she said.
The strongest manufacturing readings in Asia came from tech exporters, which continue to ride a robust semiconductor cycle driven by upgrades in smartphones, industrial robots, cars and, more recently, demand for computing machines used to mine cryptocurrencies like bitcoin.
Taiwan’s reading rose to its highest since April 2011, while South Korean factory activity bounced back into expansion territory as domestic and export orders picked up. Levels above 50 suggest growth on a monthly basis.
In Japan, the Markit/Nikkei Purchasing Managers Index rose to 54.8 last month, the highest in four years.
Even in China — where authorities are cracking down on air pollution and excessive financial risks — factory growth last month appeared generally resilient, though economists agree the crackdowns will start to weigh on activity eventually.
The private Caixin/Markit PMI was steady at 51.5 last month, matching December’s reading and better than economists expected, although official data on Wednesday suggested a slight softening as export orders faltered.
A clearer picture of China’s manufacturing activity and its actual demand might not emerge until spring when winter smog restrictions are lifted and construction revives.
“Overall, we expect Asian manufacturing conditions to remain healthy, supported by robust external demand and accommodative domestic monetary policy,” Capital Economics Asia economist Krystal Tan (譚恩) said.
However, the outlook for Asia’s export-reliant economies remains clouded by worries about US trade protectionism as US President Donald Trump’s administration starts translating last year’s tough talk into action.
Washington slapped steep import tariffs on washing machines and solar panels last week, drawing protests from Beijing and Seoul, and US officials suggest other measures are on the way.
While such steps could hurt growth, HSBC Private Banking head of investment strategy for Asia Fan Cheuk Wan (范卓雲) said there was no reason to panic as Asian nations trade more with each other than in the past and are less reliant on the US.
Individual companies were therefore more at risk than the wider economic picture.
“When we look at the risk arising from US protectionism and trade infighting, we adopt a bottom-up approach in identifying potential victims,” she said. “We will avoid these companies which heavily rely on US export markets.”
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