INVESTORS WRONFOOTED BY DOWN TURN AT EMERGING ASIAN ECONOMIES / THE FINANCIAL TIMES

Investors wrongfooted by downturn at emerging Asian economies

Some analysts expect the headwinds facing the region to last for some time

Jonathan Wheatley in London


Analysts expect the Indonesian central bank to join the rate-cutting club by the end of the year © Bloomberg


The engines of the world economy are sputtering. Last week the central banks of Malaysia and the Philippines cut their interest rates, to the surprise of many observers. Indonesia, which begins a two-day policy meeting on Wednesday, is expected to stay on hold. But, increasingly, analysts expect the central bank to join the rate-cutting club by the end of this year.

This is not what many investors expected from emerging Asia, often seen as one of the few parts of the world able to deliver solid and sustainable economic growth.

Capital Economics, a consultancy, blamed a “sharp slowdown” in Malaysian growth and “underwhelming” growth in the Philippines, along with benign inflation, for last week’s rate cuts. It said its proprietary growth tracker also pointed to a sharp slowdown in Indonesian output in the last quarter of 2018, and saw gross domestic product growth slowing further this year.

Adam Wolfe at Absolute Strategy Research, a consultancy, expects the headwinds facing the region’s economies to last for some time. “You still have significant drag from [negative] global export growth and we haven’t seen the bottom yet,” he said.

Widely followed data on world trade volumes from CPB of the Netherlands show that global exports, on a rolling three-month basis, began contracting in December and were down more than 2 per cent in February, the most recent month of data.

ASR’s proprietary leading indicator for Asia ex-Japan, meanwhile, has just turned negative for the first time in more than three years. Industrial production in the region, too, has taken a downward turn in recent months, to its lowest level in more than a decade.



Mr Wolfe says the semiconductor cycle is especially problematic, as the industry awaits the roll-out of 5G mobile internet technology. “Until semiconductor prices firm up and feed into the electronics supply chain, it is hard to see a pick-up in regional growth,” he said.

China’s economy has a dominant influence. Steel production there, Mr Wolfe notes, has been propping up economies in the rest of emerging Asia but has slowed significantly this year.

“If that were to turn over, it would point to further downside risk,” he said. Such concerns are fed by weak housing demand in China, and limits on the ability of Chinese local governments to raise finance for infrastructure investment, he added.

Others say fears of a regional downturn have been exaggerated. Sergi Lanau of the Institute of International Finance expects Chinese growth to stabilise around its current level and for other countries to keep up a healthy clip.

“Unless you think the world is really going to deglobalise and Asia won’t be central to the supply chain any more, I don’t see why that picture would change in the next four or five years,” he said.