Global worries keep Asian markets on edge
The direction of Asian markets will remain at the mercy of global forces despite strong fundamentals across the region, a leading former IMF official has said
Asian markets will be held hostage by global growth concerns, developed market sovereign debt and banking stresses and the risk of elevated oil prices, according to a leading former IMF official.
Hung Tran, deputy managing director at the Institute of International Finance (IIF), told Emerging Markets that the recent volatility in global markets in recent weeks in sympathy with the eurozone debt crisis, had underscored the bi-modal nature of Asian markets, which will continue to veer between risk on and risk off mode.
This year, Asian stock and bond markets have largely rebounded but the markets direction will be determined by these exogenous risks, Tran said.
Investors in Asia should pay heed to domestic banks asset quality and the risk of credit bubbles after the surge in lending in recent years, he concluded.
While some Asian central banks led by China, India, the Philippines and Thailand have adopted relatively-dovish monetary policies in recent months, some analysts said monetary policy would turn more hawkish in the region given inflationary pressures.
Expectations of currency appreciation are likely to attract more foreign portfolio inflows, Brian Jackson, Hong Kong-based emerging markets strategist at the Royal Bank of Canada, told Emerging Markets.
More generally, I think Asian stocks and bonds should benefit from marginally stronger global growth in the second half of the year, he said.
So far this week in what have been thin trading conditions, Asian bond and equity markets traded in broadly positive territory as positive economic data fed investor optimism that the eurozone crisis would not derail the global economic recovery.
As Emerging Markets was going to press, the MSCI Asia Pacific index rose 0.2%, led by energy stocks, while the US dollar edged higher.
The Institute for Supply Management reported that activity in the US manufacturing sector unexpectedly expanded to 54.8 in April from 53.4 in March, its highest level since 2011.
Meanwhile, official Chinese manufacturing PMI rose to 53.3 last month, its highest in more than a year, fuelling optimism that Chinese policymakers would engineer a soft economic landing.
Although its been a quiet trading week so far, investors have been heartened that global growth seems to be picking up, confirming our view of a global economic recovery, albeit sluggish, Jackson said.
Asian borrowers priced a total of $6.8 billion of dollar bond deals last week, but primary markets take a pause this week for the May Day holidays.
Banks and non-financial companies sold $195.8 billion of local currency bonds in Asia ex-Japan this year, according to data from Dealogic, a data provider, a 44% rise from the same period the year before.
The surge in issuance volumes highlights how capital markets are compensating for lower bank credit supply, buttressed by surging foreign portfolio inflows, said analysts.