Asian currencies set to plumb new lows amid slowing China demand
Slowing China demand could see countries assume weaker currencies to gain export advantages in a difficult global trading environment
Dive, dive, dive is the submariner's instinctive reaction to danger and it is a strategy, though not without its own risks, that Asia's policymakers may have to apply to their own currencies as local economies get caught in the wash of events in China and the United States.
Projections for Asian economies, predicated on ever-increasing demand from China for Asia's goods and services, are already obsolete as Beijing seeks to pare the pace of economic expansion to what it perceives to be a more self-sustainable rate.
China cannot afford to grow at the pace it did hitherto because the previous rate of expansion was fuelled by an increase in debt that outstripped the speed of economic growth it was financing.
Already, China's debt mountain is widely considered to be above 250 per cent of gross domestic product, equating to some US$26 trillion, and may not top out before 2018.
Thus, investments in Asia, calibrated to exploit China's economic appetite and financed by almost free dollar borrowings as a consequence of ultra-accommodative US monetary policy, will prove less profitable while the debt service cost will rise when the Federal Reserve tightens policy.
That does not bode well for Asia's economies.
