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News Analysis: Asian emerging economies to ride over market volatility caused by U.S. Federal Reserve's tapering

English.news.cn   2014-03-25 11:11:59

By Tan Shih Ming

SINGAPORE, March 25 (Xinhua) -- While U.S. Federal Reserve's monetary path is oriented to the tightening side, most analysts believed Asian emerging economies will be quite well-positioned to deal with the market volatility caused by U.S. tapering of monetary stimulus.

Last week, the Federal Reserve announced it would continue to reduce its asset purchase program by 10 billion U.S. dollars following its policy meeting, and gave forward guidance that it might end its bond-buying program this fall, and could start to raise interest rates around six months later.

However, the magnitude of the recent sell-off in the equity, bond and currency markets of Asian emerging economies following the announcement was milder than expected, helped by corrective policy actions, improving current account deficits and decent growth performance.

CIMB Research said "We maintain our conviction that fundamental drivers, including an improving export sector, should help emerging Asia maintain their positive growth. The advancement of structural reforms is crucial for these economies if they are to remain attractive to private capital inflows going forward."

The re-pricing of Asian emerging economies' macro risk by investors is really a blessing in disguise, said Nomura Global Markets Research.

According to the Japanese research house, the financial market volatility since the major sell-down in June last year due to first indication of U.S.tapering is more than ever before disciplining the policymakers to get their houses in order, and the majority of Asian countries are starting to respond with austerity in the forms of tightening liquidity, policy rates hikes, fiscal consolidation and productivity-enhancing structural reforms.

Hence, there is no sign in the data that Asia emerging economies are about to fall off a cliff. Indeed, their manufacturing purchasing managers' index for this year so far remain above 50 and have risen in all countries except China.

"Even in a worse-case scenario where global gross domestic product growth does slow sharply," Nomura said, "the likely downswing in global commodity prices would be a powerful equilibrating force for commodity-importing Asia."

Nomura forecast for this year, there will be growing divergences in Asia's economic performances, and this is already showing up in the economic data, and has a long way to go. Among individual economies, South Korea and the Philippines are expected to outperform in terms of economic growth, whereas Thailand, Indonesia and China are likely to lag their Asian peers.

Bank of America-Merrill Lynch Global Research is, however, less sanguine about the outlook of Asian emerging economies in the backdrop of Federal Reserve's tapering move.

While there has been a reduction in the financial vulnerability of most countries in the region in the past six months, the American research house stressed that Asian emerging economies are still not out of the woods yet.

The region is likely to see further diminishing capital inflows as the United States scales down bond purchase program and subsequently raises interest rate, said Bank of America-Merrill Lynch.

The research house added the outlook of Asian emerging economies is also clouded by a number of daunting challenges in individual countries, such as youth booms, corruption, rising food grain prices, lower oil subsidies, and possible property price declines.

Editor: Fu Peng
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