Emerging Asia – September 2015

Concerns about the extent of slowing in China, the anticipated rise in the US Fed Funds rate, and sharp declines in commodity prices have generated unease about the impact on emerging markets. Among the major Asian Emerging economies, South Korea and Taiwan, appear stronger than the rest.

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Summary & Overview

  • Concerns about the extent of slowing in China, the anticipated rise in the US Fed Funds rate, and sharp declines in commodity prices have generated unease about the impact on emerging markets (EMs).
  • There have been falls in EM currency and equity markets, as well as portfolio outflows, particularly for equities over the past 3 months.
  • This analysis adopts an indicator-based approach to focus on 5 key Asian Sovereigns: Indonesia, Malaysia, Thailand, South Korea and Taiwan.
  • Emerging Asian countries are better off than when the Asian Financial Crisis struck in 1997. Unlike 1997, most have flexible exchange rates, and have substantially built up their foreign exchange reserves. However, there remain differences among them.
  • Among the major Asian Emerging economies, South Korea and Taiwan, appear stronger than the rest. Both of them run current account surpluses, have high levels of foreign exchange reserves and maintain positive net foreign assets.
  • Conversely, both of the above countries are strongly impacted by a slowdown in China through the trade channel.
  • Indonesia runs a current account deficit and is net external debtor. However, its foreign exchange reserves are reasonable, and it’s somewhat less exposed to a potential downturn in China.
  • Malaysia and Thailand both run current account surpluses. Further, Malaysia is a net foreign creditor, unlike Thailand. However, Malaysia’s foreign reserves are less than adequate; in contrast, Thailand’s reserve coverage is adequate.
  • Malaysia and Indonesia both have a high share of foreign participation in their local government bond markets.
  • There is a broad convergence across the 5 countries in terms of growth and foreign borrowings by the corporate sector. All have moderate growth prospects, with weakness in the global economy. Further, external borrowings by the corporate sector remain high across all the 5 countries.
  • Finally, this report examines susceptibility to an event risk, and not its likelihood.

For further details, please see the attached document: