Macroscope | This time, Asia’s emerging economies will survive the sell-off storm

Nicholas Spiro says the sharp rise in US dollar and Treasury yields has led investors to pull money from the region, but emerging Asia’s economic fundamentals are stronger than in the 1990s, and capable of surviving the rout

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A woman shops for shoes at a mall in Kuala Lumpur, Malaysia. Capital flows to Malaysia’s stock market turned negative last week for the first time this year after foreign investors sold nearly US$950 million worth of equities in 11 straight days. Photo: Reuters

Published: 2:00pm, 24 May 2018Updated: 10:29pm, 24 May 2018

Investor sentiment towards developing economies is pretty bleak these days. But if there is one thing most investment strategists have been quick to point out since the sell-off intensified last month, it is that the economic fundamentals of the asset class have improved significantly since the crises of the 1990s. This is most apparent in the region which dominates the emerging market equity landscape.

Asia is not just the fastest-growing part of the developing world, it also enjoys, along with several economies in the Middle East, the strongest credit ratings in emerging markets, with China, South Korea, Malaysia and Singapore carrying ratings of single-A or higher from the three main rating agencies.

Just as importantly, Asia now accounts for two-thirds of the MSCI Emerging Markets Index, the leading gauge of stocks in developing economies, with China, South Korea and India alone making up more than 50 per cent of the index. Asian technology stocks, moreover, account for more than a quarter of the market capitalisation of the index, helping the region differentiate itself from the global commodity cycle, which remains a key driver of sentiment towards many large developing nations.

Customers use smartphones to buy groceries from a Mr Fresh unmanned kiosk in Beijing this month. Tencent-backed Mr Fresh, a spin-off of better-established online grocer Miss Fresh, has attracted US$200 million in venture capital. Asian technology stocks account for more than a quarter of the market capitalisation of the MSCI Emerging Markets Index. Photo: Bloomberg

So, if Asia is supposed to be more resilient, why are international investors pulling money from the region?

According to Bloomberg, capital flows to Malaysia’s stock market turned negative last week for the first time this year after foreign investors sold nearly US$950 million worth of equities in 11 straight days. A report from JPMorgan on flows to emerging Asia’s local currency government debt markets published last week showed that foreign investors withdrew US$1.2 billion from Malaysia’s debt market last month.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | This time, Asia’s emerging economies will survive the sell-off storm

Macroscope | This time, Asia’s emerging economies will survive the sell-off storm