Why we remain positive about an economic upturn; Respite for Asian currencies may turn out to be fleeting

Highlights from the CAA Weekly Table

Key themes in recent developments:

  • A new front opens in Asian political risks: Sino-Indian border tensions persist after five rounds of talks. With China perceived by the Indian public as having seized Indian territory, pressure on Indian Prime Minister Modi to counter China will grow but his options are limited. He will seek a face-saving compromise to avoid a near term escalation. But this incident will serve to harden India’s approach to China, which could lead to longer term conflicts. Malaysia appears headed for an early general election as Prime Minister Muhyiddin’s position is increasingly untenable.
  • Asian economies: India, Malaysia, Indonesia and the Philippines are reaching new lows in economic activity, confirming that second quarter growth will be exceedingly poor. Although there are some small signs of possible improvement such as the better outlook for Indian agriculture as a result of a relatively good monsoon, these are few and far between.

Why we remain positive about an economic upturn

  • While we expect abysmal numbers for Asian growth in 2Q20, we believe that four key factors will work for a relatively good recovery thereafter – the easing of restrictions, the resilience of businesses and consumers, the lagged impact of the most powerful policy response seen in recent times and one-off factors such as the outlook for exports of technology goods.
  • The key risk is of new waves of infection. We have assumed that these will happen but our view is also that in most cases, these can be contained, as China and Korea have shown with the secondary waves they have managed. New therapies will also reduce morbidity and mortality rates, making the disease less dangerous.

2020

Growth

(%)

Inflation

(%)

CA

(% of GDP)

Currency

(vs. USD)

Policy Rate

(%)

China

2.2

2.3

0.8

7.1

2.75*

Hong Kong

-4.5

1.5

5.8

7.78

India

0.5

3.8

-0.6

73.5

3.60

South Korea

-0.6

0.4

4.8

1,180

0.50

Taiwan

1.0

0.2

8.1

29.7

0.875

Singapore

-6.1

-0.5

14.8

1.36

Thailand

-7.5

-1.5

5.2

31.0

0.50

Vietnam

3.0

2.2

0.7

23,120

4.50

Indonesia

1.9

2.4

-1.6

14,500

3.50

The Philippines

0.5

2.1

-0.8

51.0

2.50

Malaysia

-1.8

-0.8

3.0

4.1

1.75

Respite for Asian currencies may turn out to be fleeting

  • In the short term, the trajectory of currencies can be traced to the perception of risk to growth and stability. Over the longer-term, the currency should reflect the macroeconomic fundamentals and potential vulnerabilities, especially in the external economy.
  • The currencies in Asia which concern us most according to the metrics we look at would be the Indian Rupee, Indonesian Rupiah and the Malaysian Ringgit.
    The CAA Weekly is currently available only for our subscribers. Please email  contact@centennialasia.com for subscription enquiries.
15-Jun-2020


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