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Capital Flows Back to U.S. as Markets Slump Across Asia
The Indian rupee fell to a record low today, Thailand is in recession and Indonesian stocks have slumped about 20 percent since their peak. 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 U.S. and Europe. Emerging markets from Brazil to Indonesia have raised borrowing costs in 2013 to try to aid their currencies as the prospect of reduced U.S. 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 U.S.,” 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 $155.6 billion investors poured into developed-market equity exchange-traded products in the first seven months this year, North American funds received $102.4 billion or 65.8 percent, according to BlackRock Investment Institute. Japan attracted a record $28 billion, while Europe-focused funds got $4.3 billion. In contrast, $7.6 billion flowed out of emerging-market funds.
Swinging Back
“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 $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 in July cut its forecast for growth this year in developing Asia by 0.3 percentage point to 6.9 percent.
In the past three months the MSCI Asia Pacific Index has fallen 9 percent, compared with a 1.2 percent decline in the Standard & Poor’s 500 Index and a 2.4 percent drop in the Stoxx Europe 600 Index. Signs of a stronger U.S. economy may prompt the Federal Reserve to begin paring its $85 billion in monthly bond purchases as soon as next month.
India’s benchmark stock index is down more than 5 percent in the past week and Thailand has fallen more than 6 percent. Indonesia’s Jakarta Composite Index lost 10 percent in that period and is down about 20 percent since its close on May 20.
Rupee Plunge
Indian policy makers led by Prime Minister Manmohan Singh are battling to stem the rupee’s plunge, attract capital flows to bridge a record current account deficit and revive growth. The currency has weakened about 28 percent versus the dollar in the past two years, reviving memories of the early 1990s crisis, when the government received an International Monetary Fund loan as foreign reserves waned.
“It seems now the pain is going to be in the emerging markets,” said Nitin Mathur, an analyst in Mumbai at Espirito Santo Investment Bank who expects sectors with higher valuations such as consumer goods to suffer the biggest declines. “The problems in India are not temporary blips. The problems are much more serious which will take a lot of effort to get resolved.”
In Thailand, the economy entered recession last quarter for the first time since the global financial crisis. Toyota Motor Corp. said last month industrywide car sales in Thailand will fall 9.5 percent this year. The government cut its 2013 growth forecast yesterday as exports cooled and local demand weakened, with higher household debt restricting scope for monetary easing.
Thai Credit
Thailand’s private-sector credit as a share of gross domestic product has “increased significantly” in recent years raising concern about financial stability, Krystal Tan, an economist at Capital Economics Ltd. in Singapore, said in a Bloomberg Brief commentary.
Taiwan last week cut its 2013 growth and exports forecasts and said the global outlook for the second half is worse than in May. The island’s export orders unexpectedly rose for the first time in six months in July, the government said today.
“We are seeing a turning point,” said Freya Beamish, Hong Kong-based economist with Lombard Street Research, who says 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 U.S. stimulus, money that often finds its way to export-based countries in payment for goods.
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Capital Flows Back to U.S. as Markets Slump Across Asia - Bloomberg
Capital Flows Back to U.S. as Markets Slump Across Asia
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