Bank of China

Asian emerging markets in good shape, says Fitch

PUBLISHED : Wednesday, 23 November, 2011, 12:00am
UPDATED : Wednesday, 23 November, 2011, 12:00am

Asia's emerging markets are in good shape to weather outflows of hot money, currency fluctuations, weak exports and global macroeconomic uncertainty next year, according to Fitch Ratings.

In a report focusing on financial risk in the region in the event of a sudden stop in external financing, the rating agency gave a generally positive report.

Although the region was generally well-positioned to handle a liquidity shock, Fitch said Indonesia, South Korea and Malaysia had the weakest foreign exchange reserve capacity to handle potential capital outflows in the event of a global downturn.

It said China, Taiwan and the Philippines were less exposed in the event of a liquidity shock. However, in a separate report, Fitch assigned China a negative local currency rating of AA-minus, stressing structural issues in the country's banking system.

In a separate report, Arthur Kwong, the head of Asia-Pacific equities at BNP Paribas, said Chinese banks' earnings growth would probably slow next year after a period of aggressive loan growth as the central government sought to stabilise the financial sector.

Beijing has announced measures to allow different types of private companies to issue bonds through private placements in order to wean them off their dependence on bank loans.

China Construction Bank and Bank of China underperformed the Hong Kong stock market yesterday. Both were among the most actively traded stocks in terms of turnover. Construction Bank closed 1.12 per cent lower and Bank of China fell 2 per cent, while the market ended 0.14 per cent firmer.

In the current climate, investors were more prone to sell off across the board, regardless of the fundamentals of individual stocks, Kwong said. This was particularly true in the US, Europe and Japan.

He also predicted that gold prices would rise 10 to 15 per cent as emerging Asian countries were likely to increase their holding of gold to minimise currency risk.

Korea and Thailand, for example, had been the first in Asia to aggressively increase their gold reserves this year. Thailand was now holding 152.4 tonnes of gold, which was about 30 per cent more than last year.

China could be the next to significantly increase its gold reserves, Kwong said. 'China is sitting on trillions of US dollars in [foreign exchange] reserves. It would only make sense for China to hold more gold.'