• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

Optimism and reality in Asian economies

0
  • by James Bevan
  • in James Bevan
  • — 25 Jan, 2013

Before the advent of cheap travel and with the rise of novel writing in the nineteenth century many authors wrote imaginatively about places that they hadn’t visited, and readers of the day gained a perspective of what a place was like – even if it wasn’t correct. Today, there seems to be a similar risk in terms of gauging the global economy and market prospects given that broker circulars, commentaries and buy notes from and of Asian economies suggest that a new boom is underway – yet the data suggest otherwise. Thus, regional exports are very weak particularly in local currency terms; inventories are still high and domestic demand trends surprisingly lacklustre. The latter may seem strange given the combination of low interest rates and high level of capital inflows that these countries have experienced, but we may suspect that the current extremely high level of subsistence costs (such as property prices and service sector charges) that have been caused by the previous capital inflows cycles that were associated with the QE1 & 2 “risk-on” rallies are now acting as a form of consumption ‘tax’ – and therefore depressing spending trends. This is particularly an issue for Singapore and North Asia.

Naturally, as a result of these weak trends, Asian economies are looking for a new external stimulus but OECD trends – particularly in Europe – make this an unlikely prospect. Moreover, with foreign equity investors still being driven into Asian markets by the portfolio  and ongoing quantitative easing forces presently in place, and despite weak current growth, many Asian currencies such as the Korean Won, Philippine Peso and China’s RMB are being bid higher and thereby making the headwinds that these economies face all the stronger.

For Asia’s still essentially mercantilist regimes, this appreciation of their currencies against the background of a still weak global trading environment is thoroughly unwelcome. No surprise then that news reports reveal that some of the Asian region’s central bankers have begun to rail against it. Both Korea and the Philippines have talked of excessive currency strength and threatened to intervene in the foreign exchange markets. At present, this may be no more than sabre rattling but we should be concerned that if demand in the OECD economies has not picked up by the second quarter, and that doesn’t look hugely likely in the light of the most recent US retail numbers, and Asia is therefore still beset by weak exports, high inventories and soft production trends, then we may see Asian authorities attempting to engineer weaker currencies.

We may also suspect that by this point of the year China will be beginning to experience a new round of balance of payments deficits as its declining current account surpluses, resulting from weak exports but stronger imports, prove insufficient to offset the trend towards greater net capital outflows. Consequently, by the second half of this year, we could be seeing weaker currencies across Asia and heavier export price discounting.

The immediate consequence would be cheaper goods for Western consumers but more importantly, with traded goods prices such as those from Asia accounting for about a third of OECD CPIs, any renewed export price deflation in Asia could lead to lower than expected inflation or even a deflation scare in the West, and also to weaker margins and even weaker investment intentions in the Western traded goods sectors. This combination would threaten OECD economic recovery and test market optimism on economic and corporate earnings growth. Indeed, renewed threat of Asian trade price deflation could even provide fundamental support for bond prices and the current low level of yields.

If there is a deflation scare later this year, the policy response will be to question austerity, and focus on debt monetization and financial repression, following the lead now taken by Mr Abe in Japan. This risk highlights that the future investment climate is not straightforward, even before we take on board the significant uncertainties associated with US debt ceilings negotiations, Euroland debt de-leveraging and China’s growth. Accordingly investors should continue to be wary, with equity risk-takers prudently focused on quality and reliable growth.

James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccla

Share

You may also like...

  • What’s going on in China? What’s going on in China? 11 Jun, 2013
  • Cypriot depositor bail-in a ‘game changer’ Cypriot depositor bail-in a ‘game changer’ 18 Mar, 2013
  • Mr Carney at the Bank of England Mr Carney at the Bank of England 27 Nov, 2012
  • James Bevan: Inflation set to remain below target James Bevan: Inflation set to remain below target 23 Jul, 2015

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 13 hours ago

    Going beyond the standard metrics for climate change: Sponsored article: With climate change an investment imperative and an imminent reporting requirement, Ritesh Bamania argues UK pension schemes should look beyond today’s standard metrics. With… dlvr.it/RtnpLS pic.twitter.com/6ABaFHyS9I

    Room151 2 days ago

    LGPS webinar: Governance the key to TCFD implementation: LGPS funds have been warned that governance is it at the here of Whitehall plans to impose a new climate reporting regime on pension funds. In January the Department for[...] dlvr.it/RtjwNq pic.twitter.com/YMiMdmRyzU

    Room151 2 days ago

    LGPS webinar: Central bank management of bond purchasing could affect all asset classes: When the government debt caused by the pandemic is eventually tackled there may be a huge impact on assets of all classes, according to a leading investment expert… dlvr.it/RtjwJx pic.twitter.com/7v8K5vMYHo

    Room151 2 days ago

    #LGPS readers...what to do about #bonds? room151.co.uk/blogs/lgps-web… @BrunelPP 's new CIO, David Vickers tackles a problematic area #centralbanks #assetallocation #fixedincome pic.twitter.com/yUJr0azbKv

    Room151 2 days ago

    LGPS Challenges: Balancing Realpolitik and responsible investment: Elizabeth M. Carey warns of the perils of an ESG echo chamber as countries outside the West continue to invest in fossil fuels. Anyone working with the LGPS probably feels[...] dlvr.it/RtjMpq pic.twitter.com/MykIYxuYri

    Room151 5 days ago

    How can local government ‘build back better’?: Beverley Gower-Jones looks at the options for driving small business entrepreneurship in clean technologies. Innovation is essential for local authorities to save money and reduce emissions, it is the… dlvr.it/RtT3nS pic.twitter.com/bSMB6OG70t

    Room151 6 days ago

    Helen Randall: Spelthorne report places spotlight on ‘controls’: Fresh criticism of Spelthorne Council raises the question of what “good” controls look like when negotiating a property deal. Spelthorne Council’s continuing debacle over property… dlvr.it/RtSPhy pic.twitter.com/9uCOJgBcH6

    Room151 6 days ago

    Step-out strategies: Hitting the sweet spot between liquidity and ultra-short duration: Sponsored article: Jemma Clee describes how an ultra-short duration strategy can help local authorities enhance returns. Despite the expectation of a low, and… dlvr.it/RtSPZb pic.twitter.com/pdXPpv5lcN

    Room151 7 days ago

    What role will climate change have on the pricing of government bonds?: Sponsored article: Kerry Duffain finds that “vulnerability and resilience to climate change” have a significant impact on the cost of government borrowing. Ardea Investment… dlvr.it/RtNKv7 pic.twitter.com/wDjT31x4Yt

    Room151 1 week ago

    ESGenius: Slashing emissions will fuel green growth for decades: Sponsored article: Velislava Dimitrova argues that a big enough investment could mean transition to a low, or no, carbon economy can become a reality. The world needs to slash carbon[...] dlvr.it/RtKZJp pic.twitter.com/cd8S3ijERl

    Room151 1 week ago

    Prudential code: “Not perfect, but its heart is in the right place”: The new Prudential Code offers revised rules for borrowing. Nikki Bishop is sceptical it will work while Gary Fielding offers his support. Nikki Bishop I have been asked to give[...] dlvr.it/RtKZFh pic.twitter.com/OriN28lXcb

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Printing money: not as straightforward as it sounds
  • Next story The ECB, the Euro and what’s being taken on trust

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.