Asia's role as the world's growth engine is waning as economies across the region weaken and investors pull out billions of dollars.
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.
Eoin Treacy's view Over the last decade investors had become accustomed to the prospect of both capital and currency appreciation when investing in Asia. The Euro, US Dollar and Pound spent a great deal of time ranging with a downward bias over the last decade. As base formations develop, the prospect of continued outperformance by Asian currencies is dimming, not least because Japan's devaluation acts as an incentive for its neighbours to weaken their own currencies.
Asia remains a vibrant region, home to the majority of the world's newly minted consumers. This is likely to remain a powerful investment theme for the foreseeable future. However, the coincident strength of the respective currencies represents more of an uncertainty. The Asia Dollar Index hit a medium-term peak near 120 from 2011 and is now testing the lower boundary of the Type-3 top formation near 100
The Indonesian, Thai, Singaporean and Philippine markets all experienced sharp declines in May and have been ranging in the region of their respective 200-day MA for two months. They are increasingly breaking downwards from these ranges and while oversold in the very short-term, clear upward dynamics will be required to check the declines. Enough technical damage has been endured that the best case scenario is now for medium-term ranges to develop below the peaks