Asian Insights

Key highlights from the CAA Weekly Table

• Global: With the US economy gaining momentum, the issue is not whether the Fed hikes in December but whether it will be forced to raise rates even more aggressively thereafter. The UK High Court ruling on Article 50 adds more uncertainty over Brexit, increasing currency volatility in Asia.
• Is China really gaining support: ASEAN nations’ moves to forge greater cooperation with China do not mean that they are beholden to China, at America’s expense. Smaller powers will always strike a balance with larger powers in the region, so as to maximise leverage.
• Signs of weakness in Asian economies despite stronger global economy: The Chinese economy is progressing well despite no fundamental resolution of risks. Continued weakness in credit growth could hold the Indian economy back. As Singapore companies face mounting debt woes, expect the economy to see further deterioration.

The world economy: Rising cyclical momentum and trade intensity – a positive for Asia

• Global growth continues to display signs of strength marked by sustained improvements in the global composite purchasing managers index and rising trade volumes.
• Diminishing cyclical headwinds are boosting external demand for Asian exports, but two key factors constrain the prospects of a longer-term trade recovery: First, the impending revival of capital spending. Second, the drag from structural headwinds to trade.
• Trade could continue to falter in the long-term if capital spending does not recover sufficiently to outweigh the dampening effect of structural forces.

Thailand: Exports buoy short-term outlook; economic flexibility undergirds long-term growth

• Even as the country mourns the death of revered King Bhumibol, the Thai economy continues to make strides in its economic upswing, led by export growth. Continued support from the government in terms of public sector expenditures on consumption and investment remains manifestly important.
• As farm incomes rise, private consumption has remained robust. However, falling rice prices have dimmed consumer sentiment somewhat. There are also signs of a pick-up in investment in certain sectors as exports turn positive. Inflationary pressures are likely to be benign and increase only gradually, while the Thai Baht has stayed relatively unchanged in terms of REER. Monetary policy will remain accommodative without further easing.
• Positive structural changes are afoot as the economy displays its great ability to spontaneously adapt and adjust to new realities. This economic flexibility puts Thailand in good stead in the long run.

Key highlights from the CAA Weekly Table

• Global: An OPEC deal to commit to production cuts looks increasingly unlikely, which will see Brent crude remain between USD50-60 per barrel. World trade, however is more encouraging. An uptick in trade volumes suggests headwinds to global trade activity are subsiding. The Eurozone and Japan are also positing signs of recovery, while in the US, the case for monetary normalisation remains strong.
• Asian economies mixed outlook: The South Korean economy slowed on the back of domestic shortfalls. Taiwan, however, strengthened further on the back of buoyant exports and robust domestic consumption. Signs of increased global activity bode well for the Singapore economy as it grapples with domestic deficiencies.
• Geopolitics: As North Korea accelerates towards posing a credible threat to US mainland with its increased nuclear power, the US will need to re-think its strategy to cap North Korea’s nuclear capacity.

China: 6th Plenum sets President Xi up for dominance

• The Communist Party of China concluded its annual four-day conclave on 27 Oct.
• First, President Xi has emerged from the meeting a more dominant force. He has attained the title of “core” leader in the CCP and looks to be the sole power centre.
• Secondly, Xi has set his mind to achieving a number of targets. These include extending his tenure at the top and installing trusted aides into key positions at the 20th Party Congress. His formal institution of the anti-corruption campaign is meant to strike fear into the hearts of his opponents, with the latest plenum endorsing a code of conduct which emphasises greater scrutiny on the senior leadership.
• Thirdly, this means that the fervour for reforms will ebb while nationalistic passions will be fanned in a bid to rally the Chinese people to Xi’s cause. Expect structural overhauls to take a backseat as politicking rises to the fore while foreign policy to be more robust, including a harder stance on maritime disputes.

Indonesia: Rising prospects of stronger growth

• With the Indonesian government making significant headway in returning confidence back to the economy, Indonesia is set to recover modestly.
• The key growth driver, private consumption, is regaining momentum, exports are showing signs of recovery, however the missing ingredient is private investment.
• With the leading indicator also suggesting above trend growth and improved external stability, the big question is Indonesia’s resilience to an inevitable US Fed rate hike.
• The Indonesian economy is vulnerable, but with the support from continued policy vigour, the economy should stabilise in the longer-term.