What To Expect In Asia

No more time for niceties and S&P is taking the lead asserting that while this may not evolve into a full blown Asian crisis, the most likely scenario is the following.

“Weak or delayed policy response (moderately high probability and rising).
Left to their own devices, economies,exchange rates, and asset prices will eventually find a bottom. Growth will eventually slow enough so that it curbs imports and the current account corrects; and the currency will eventually fall far enough to spur exports while foreign investors seeing a bargain (including remittances and investments from overseas nationals) will come back in. But the cost to output, employment, and wealth is likely to be large along this path.”

Full document : http://twitdoc.com/upload/standardpoors/ratingsdirect-commentary-1183586-08-27-2013-09-51-24.pdf

Deutsche came out to say that they believe that the SGD is overvalued.

“Our currency strategists also believe that the SGD remains the most overvalued currency in the region, with low real rates, and in light of the highest beta to the broader USD and the US Treasury re-pricing story, they believe that the SGD will weaken vs. the USD. Spillover from regional depreciation is also likely to affect the SGD. We note that current spot rates are
approaching our 12m USDSGD forecast of 1.30. Similar to the case in Malaysia, we believe that exporters will stand to benefit from a decline in the SGD (e.g. Keppel Corp, Sembcorp Marine and ST Engineering), while companies such as Singapore Airlines, with a high percentage of USD denominated costs, are likely to be negatively affected.” Source : Deutsche

So we head right into the eye of the storm or the J curve now. Losing wealth, output and employment then when we hit rock bottom, the investors will be back.

There are dissenting views too.

“we think that emerging market (EM) economies in general and Asia ex-Japan (AXJ) in particular are likely to see moderately faster growth in H2 this year compared with H1, helped by better growth in the US and some stabilisation in Europe. The fundamental differences between now and 1997-98 are significant on any metric, most notably the current-account (C/A) balance, short-term external debt and foreign-exchange reserves. We expect the AXJ region to remain a growth outperformer in most scenarios other than a huge downturn in the global economy.” Source : Stanchart

I like the denial aspect of this argument. Is there no need for policy changes ? or reform implementation ? Surely India cannot go on feeding their deficit with a new food subsidy bill ?

http://www.businessinsider.com/indian-rupee-tanks-against-the-us-dollar-2013-8

India onion prices have quadrupled in a few weeks making curry even more expensive.

http://www.forbes.com/sites/saritharai/2013/08/27/the-mysterious-case-of-levitating-onion-prices-in-india/

My opinion is that we cannot get an honest answer out of banks because they have too much to lose if they ever tell the truth.

Frank admissions like this I read out of Saxobank is perhaps the closest we will get.

“Bermuda Triangle” of economics (low growth, high stock markets and high unemployment) is not a sustainable reality. It’s an illusion and one that will become increasingly painful to extricate ourselves from the longer we continue to believe that it is real.

The market backdrop in Q3 has nothing to do with economic fundamentals, but has much to do with whether politicians will continue to be able to buy time like they’ve been doing since
2008. Their loyal brothers in arms since 2008 have been the central banks, even if this year has seen the first rumblings – mostly from the US Fed, if somewhat fitfully – that quantitative
easing (QE) cannot last forever and a normalisation will eventually be necessary”

Source : Saxobank

http://sg.saxomarkets.com/Documents/market-insight-q3-outlook.pdf

They went on to predict that 3Q is probably the last quarter where the slowest investors will get into stocks and its ability to shut out reality as politicians continue to buy time (till their term is up).

It remains bleak as we head into the Taper month of September. Should the Taper not transpire, should we rejoice ?

 

Related articles :

FED UP OF THE FED (tradehaven.net) 28/8/2013