Green shoots in global manufacturing a positive for Asia Malaysia; Political tensions likely to come to a head soon

Highlights from the CAA Weekly Table

What has changed?

  • Asian economies: The weak set of economic indicators for October does not detract from our view of a modest upside surprise in the Chinese economy, driven by rising infrastructure spending and improved flows of credit to the private sector. The rout has deepened in India as factory output shrank again. Stirring food prices are unlikely to deter the central bank from cutting rates again. The Singapore economy is stabilising after a bruising year but the government is struggling to stir domestically-driven growth. A whole-of-government approach to bureaucratic reforms is firming up in Indonesia, while a marginal trade surplus in October bodes well for the external accounts. 3Q19 GDP growth moderated to still-respectable levels in Malaysia, but moribund private investment remains a worry. In the Philippines, the Duterte administration will push hard for tax reform but, with 5 weeks to go before Congress goes on recess, progress is likely to be limited.
  • Asian political risks: Tensions in Hong Kong are reaching a boiling point: risks of an escalation will be higher after the district elections in late November. The locus of geopolitical risk is poised to shift next to Taiwan which is gearing up for presidential and legislative elections in January. Despite the recent botched suicide bombing in Indonesia, we believe that the security apparatus still retains the initiative against terrorist networks.

Green shoots in global manufacturing a positive for Asia

  • Global manufacturing activity seems to be turning around slowly as shown in the purchasing manager index for manufacturing edging up and inventory restocking resuming.
  • But weak capital spending is limiting any immediate upside in demand for Asian exports.
  • Thus, our lead indicator shows no sign of Asian exports picking up just yet. Instead, there is some evidence pointing to an improvement in business sentiment and capex by 1H20.

Malaysia: Political tensions likely to come to a head soon

  • The magnitude of the ruling PH coalition’s defeat in the Tanjung Piai by-election indicates that both Malay and Chinese voters have turned against it. If these voting patterns are repeated in a general election, PH would be reduced to a rump.
  • The coalition will struggle to overcome its weaknesses. Its component parties hold widely divergent views on critical issues, there is no dominant party to ensure a coherent view across the grouping and neither is there a leader strong enough to unite the parties.
  • Tensions are likely to spike for several reasons. The victory will embolden the opposition to step up their stoking of racial and religious sentiments against the government. The defeat is also a stinging rebuke for Prime Minister Mahathir, who is coming under pressure to hand over power as promised to Anwar Ibrahim. Internal divisions within the PH are also growing.
  • These tensions could soon come to a head and force a political re-alignment, at the expense of the economy

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