1. Newsroom
  2. Investors Should Continue Looking Into Emerging Asian Markets
Menu
Analysen 11.03.2016

Investors Should Continue Looking Into Emerging Asian Markets

Investors Should Continue Looking Into Emerging Asian Markets

For the European Central Bank (ECB) and the Bank of Japan (BOJ), the initial response to the negative interest rate experiment has not worked out as planned.


For the European Central Bank (ECB) and the Bank of Japan (BOJ), the initial response to the negative interest rate experiment has not worked out as planned. The idea of pulling borrowing costs below zero goes against rational economic theory. Besides deterring the idea that future value of money should be greater than net preserve value, these policies hurt banks as costs are unlikely passed to depositors, lowering the profitability of providing loans.

The aforementioned has weighed on markets for most of 2016. Market pressure steams from ebbing confidence that central banks in developed markets have means to offset deflationary pressure. However, a gap exists between central bank capabilities and market expectations, in our opinion. Central banks are lenders of last resort, instituting policies that alone do not resuscitate the economy but instead provide parameters conducive for growth. Besides quantifying credibility of central banks, investors should also include two additional considerations: economic dynamics and potential benefits from a subsequent year of low energy prices. These three qualities are present across most of Emerging Asia.

Across Southeast Asia, central banks continue to apply both independent and prudent approaches to ensure economic stability. The Reserve Bank of India’s Raghuram Rajan looks to rebuild foreign reserves in order to maintain manageable inflation levels. Bank Indonesia cut interest rates twice year to date to spur growth. Bangko Sentral ng Pilipinas (Philippines) incumbent governor Amando Tetango has been instrumental to control physical asset prices while Bank Negara Malaysia’s governor Zeti Akhtar Aziz is credited for ensuring the bank’s autonomy going forward.

Supported by sensible central banks, the outlook for Asian economic growth remains encouraging. Although expanding below previous years, the regional economy continues to demonstrate resilience due to domestic demand. In 2015, India and the Philippines expanded 7.1% and 5.7% respectively, which were key beneficiaries of falling oil prices. Indonesia expanded 4.7% on the back of an improving current account deficit. Malaysia, a net commodity producer, expanded 4.9% as private consumption offset the fall in energy prices.

Middle class households throughout Emerging Asia benefit on subdued oil prices given the region is a net importer of energy. Continue softness in global oil should allow central banks in the region more maneuvering to support the economy. Real and positive interest rate moves are more effective to stimulate demand, and thus investors should continue to prefer markets where central banks operate in a supportive economic environment. It should be no surprised that amid the early year correction as a result overreaching policies put forward by developed central banks, ASEAN equities have been outperformers. Supported by strengthening currencies against the USD, investors are rotating into Southeast Asia, as rising intraregional trade and relatively lower exposure to the global trade cycle becomes more valuable amid volatility.

ChristopherChu.jpg
Christopher Chu, Assistant Fund Manager - Asia

Expertise

Impact investing - Contributing to a more sustainable future

What are the key features of impact investing?

Read more

Meistgelesene News

Analysen 19.02.2020

Changes in consumption patterns

Despite being fast-moving and quite unpredictable, changes in consumption patterns are expected to reshape the economic landscape.

Analysen 15.04.2020

The Case For Frontier Debt

India’s total infected cases (979) and fatality rate (25) remain low but it has been escalating. According to the World Health Organisation (WHO), this can become overwhelming, if uncontrolled.

Analysen 22.04.2020

Impact Report 2019: an eventful year

UBP is proud to release the second edition of its Impact Report.

Auch lesenswert

Analysen 06.07.2020

US Presidential Election Comes Into Focus

Spotlight - US President Trump’s re-election polls have fallen to their lowest levels since polling began for the 2020 Presidential contest raising the potential for a change in the presidency in 2021.

Analysen 03.07.2020

COVID-19: Die UBP hält Sie auf dem Laufenden

Seit dem Ausbruch des Coronavirus begleiten und unterstützen wir unsere Kunden während dieser ungewöhnlichen Zeit einer weltweiten Gesundheitskrise. Die Bank informiert Sie regelmässig über die Anpassungen ihrer Massnahmen an die von den Gesundheitsbehörden vorgegebenen Vorsichtsregeln. Ausserdem kommen unsere Experten zu Wort, welche auf die Auswirkungen der Pandemie auf die Weltwirtschaft und die Finanzmärkte eingehen.

Analysen 30.06.2020

Aktualisierter Ausblick 2020

Weltwirtschaft - quo vadis?