Macquarie: Emerging Markets Are Not Facing a 1997-Style Crisis—They’re Facing Something Worse – Bloomberg Business 09-16-15

Salient to Investors:

Viktor Shvets and Chetan Seth at Macquarie said:

  • Emerging markets and economies are in a worse situation than in the 1997 Asian financial crisis because they now face far longer, more painful and insidious disease with limited or no cures or exits, punctuated by occasional significant flare-ups.
  • The effect of the 1997 crisis were mitigated by excessively loose monetary policies and China’s integration into global trade, which helped all markets recover quickly. However, this is not the environment facing economies in the next 5 to 10 years: long-term structural shifts, driven by the deflationary progress of the Third Industrial Revolution, is aggravated by overleveraging and overcapacity.
  • Turkey, South Africa, and Malaysia are at most risk, while China, the Philippines, and South Korea are at least risk. Brazil and Russia are at lessor risk but their low exposure to external debt could be undermined by slumping commodities and slowing trade.

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Palm Oil Seen Dropping as Mistry Has Buy Call on Planters – Bloomberg 09-15-14

Salient to Investors:

Dorab Mistry at Godrej Intl said:

  • Palm oil at a 5-year low creates a buying opportunity for plantation and processing company stocks because producers are still making money.
  • Invest in plantations when palm oil prices are low. In Q4, 2008, when in a similar situation with regard to supply, demand and price, palm oil rapidly made itself competitive and exported its way out of a crisis as Malaysian stocks peaked in December 2008.
  • Prefer processing companies which manufacture specialty fats, oleochemicals, biodiesel and own consumer brands. Upstream companies will benefit when the price cycle turns.”
  • Expects prices to drop 9.6 percent to $588 a metric ton in the next few weeks towards Asian growers’ production cost but not below.
  • Full-year output in Malaysia, the second largest grower, will be more than initially estimated, while production at the largest grower, Indonesia, is also ahead of expectations.
  • Stockpiles will continue to rise and peak in December. Chinese imports will remain thin for at least the next 3 months as high-priced stockpiles are used up.
  • After the record US soybean crop this summer, farmers in Brazil and Argentina may switch to soybeans from corn this year. Argentina will devalue its currency to boost its overseas shipments.

Adrian Foulger and Denis Chai at Standard Chartered recommend plantation stocks to profit from a rebound in prices, and say the way to make money in the palm sector is to buy growth operators when prices are low and sentiment is weak.

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China Lures Less Investment Than Southeast Asia, BofA Reports – Bloomberg 03-04-14

Salient to Investors:

Chua Hak Bin at Bank of America Merrill Lynch said:


  • Total foreign direct investment into Singapore, Malaysia, Indonesia, the Philippines and Thailand was $128.4 billion in 2103 versus $117.6 billion for China.
  • Rising foreign direct investment into Asean will remain a favorable structural trend over the next few years, given favorable demographics, competitive wages and geopolitical competition between the superpowers which remain the major investors.
  • China’s ability to attract investment may be hampered by higher manufacturing wages and an appreciating currency.
  • Indonesia’s large domestic market, low relative wages despite minimum wage increases and a weak rupiah make it attractive for lure foreign investment.


A Japan Bank for International Cooperation survey showed Indonesia has overtaken China and India as the most promising country for Japanese companies for business development.

A drop in China’s working-age population is robbing China of an engine of three decades of growth, whereas Southeast Asia’s developing nations show rising numbers of youth search for employment, luring companies seeking a cheap labor force and new domestic markets.

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Irrational Exuberance Overtakes Asia – Bloomberg 12-12-13

Salient to Investors:

William Pesek is  writes:

The “Greenspan put” that flooded markets with cash whenever things got dicey has become the default position in Washington, while in Asia there is an even more dangerous escalation of this policy in papering over cracks in economies that desperately need tougher, structural reforms.

Indian stocks have hit record highs, everyone is talking about India turning the corner, despite nothing really changing from 3 months ago when the rupee was plunging to record lows, politicians fumbled at every turn, talk abounded it would become the first BRIC to have its credit rating cut to junk. India’s current-account deficit is still a danger, just temporarily disguised by a charismatic new central banker. India remains politically corrupt, and the odds are that the BJP is no more a force for change than it was in 2004.

In Japan, the Nikkei 225 Stock Average is up 47 percent despite not one of Abe’s restructuring pledges being fulfilled. Japan is just as heavily regulated, uncompetitive and devoid of innovation as it was the day before Abe came to office. All that is new is a stronger punch recipe. Japan has an overpriced, unproductive and shrinking workforce, not to mention an economic structure geared for success in the 1970s.

PBC Governor Zhou Xiaochuan is deluded in believing China that can grow close to 8 percent a year, no matter what Communist Party leaders do or don’t do. President Xi Jinping’s vague pledges to let markets play a bigger role in the economy has made him seem like a Chinese Margaret Thatcher. Yet as China ends a crackdown on fraud and clears the way for over 700 companies to sell shares, the coming boom in IPOs will benefit from a kind of reform halo effect.

The policies of central bankers in China, India and Japan is no replacement for real reforms, like curbing corruption, lowering trade barriers, creating jobs, encouraging entrepreneurship, building social safety nets, promoting sustainable development and reducing their own role in the economy. Monetary policy can cushion the process of fixing flaws in economies, but it is no substitute.

America’s Greenspanization unfolded at a time in the 1990s of relative stability in a very mature economy. Asia’s Greenspanization is happening far too early in the development cycle, and much too broadly. Evidence of governments letting central bankers do their jobs can be found in Indonesia, Malaysia, the Philippines, South Korea, Thailand and Vietnam.

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Don’t Blame the Fed for Asia’s Problems – Bloomberg 08-26-13

Salient to Investors:

William Pesek writes:

Another 1997-like Asian crisis is highly unlikely because exchange rates are now more flexible, foreign-currency debt is lower, banks are healthier, countries are sitting on trillions of dollars of reserves, and economies are far more transparent.

The same can’t be said of 1994, when the Fed last reminded the world that its monetary policy is decided in Washington, not Asia. Then, Greenspan doubled benchmark interest rates over 12 months, causing hundreds of billions of dollars in bond-market losses and helping set the Asian financial crisis in motion. The dollar’s post-1994 rally made currency pegs impossible to maintain, leading to devastating devaluations across the region.

Asia’s real problem then was hubris, but now it suffers from a different kind of smugness. After the 2008 global crash, regional governments started believing their own press. They were convinced they had decoupled from the West. Bankers were abandoning New York and London for Hong Kong and Singapore. Asian debt had become a safe haven from turmoil in Europe. And, as China’s 1.3 billion people grew richer, the good times would keep rolling on.

Asia has come a long way since 1997 but rapid growth and unquestioned success in surviving the global meltdown has revived hubris. Currencies in Indonesia, Thailand and elsewhere suddenly seem toxic to investors, while India is in chaos at a time when China’s growth trajectory is more uncertain than it has been in 15 years.

Asia may be able to live without American and European consumers for 4 or 5 years, but thriving beyond that requires more buoyant and self-supporting domestic economies.

Complacency is too easy to find in Indonesia, Thailand, Philippines, and Malaysia.

Simon Grose-Hodge at LGT Group said the US has been given a free pass on the twin deficit issue, but emerging-market countries will not be so lucky.

In India, reforms have stalled and unaffordable government handouts have proliferated. With an election due in nine months, no one expects the hard decisions needed to get the economy back on track will be taken.

Unlike in 1997, Japan Inc. is healthier, the government is shoring up the economy, and the central bank stands ready to add new liquidity as the Fed’s tapering process begins. China will pull out all the stops to keep growth above 7 percent.

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Capital Flows Back to U.S. as Markets Slump Across Asia – Bloomberg 08-20-13

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Asia’s role as the world’s growth engine is waning as economies across the region weaken and investors pull out billions of dollars in favor of nascent recoveries in the US and Europe.

Economists forecast Malaysia will post its second straight quarter of sub-5 percent growth this week.

Stephen Jen at SLJ Macro Partners said the eye of the storm is directly above emerging markets and could be serious for Asia.

BlackRock Investment Institute said $155.6 billion poured into developed-market equity ETPs in the first 7 months of 2013: $102.4 billion into North American funds, $28 billion into Japan, and $4.3 billion into Europe, while $7.6 billion flowed out of emerging-market funds.

Shane Oliver at AMP Capital Investors said the pendulum is swinging back in favor of the advanced countries: this happens once a decade or so when you see a turn in relative performance. Oliver said Asia has entered a tougher, more difficult period and money continues to flow back to Europe and the US.  Oliver said Asia will still be a stronger part of the world than the US or Europe but compared to people’s expectations is likely to come in a little bit lower than expected.

The IMF in July cut its forecast for growth in 2013 in developing Asia to 6.9 percent, cut its global growth forecast to 3.1 percent and projected advanced economies would expand 1.2 percent in 2013. Economists expect the Fed to taper in September. The median economist expects Malaysia growth of 4.7 percent in Q2, its slowest rate since September 2009.

Nitin Mathur at Espirito Santo Investment Bank said the pain is going to be in the emerging markets, and expects sectors with higher valuations such as consumer goods to suffer the biggest declines. Mathur said the problems in India are not temporary blips but much more serious and will take a lot of effort to get resolved.

Krystal Tan at Capital Economics said Thailand’s private-sector credit as a share of GDP has increased significantly in recent years raising concern about financial stability.

Freya Beamish at Lombard Street Research is seeing a turning point, and says China’s competitiveness has been hurt by labor costs that are 30 percent too high and the region’s clouds are already here.

Indranil Pan at Kotak Mahindra Bank said the emerging Asia story is crumbling and the dollar is once again king, and India’s slump is worse than elsewhere in Asia because it failed to carry out long-overdue structural changes to the economy.

Richard Jerram at Bank of Singapore says the market declines reflect overly ambitious expectations rather than fundamental weakness in the economies. Jerram said there is a good structural story based on the underlying domestic demand, and what you see at the moment is reaction from expectations, unrealistically positive 12 months ago, becoming more realistic.

Shuichi Hirukawa at Mizuho Asset Mgmt said Asia still has potential in the next 3 years or more, but shorter term business momentum is slowing.

Jim O’Neill said some Asian countries, especially India, have their own significant domestic challenges, but China is slowing primarily to improve its growth model and at 7-7.5 percent annual growth is still delivering $1 trillion nominal GDP. O’Neill said Japan is looking better than it has done for a very long time.

Kaushik Basu at the World Bank said the slowdown in economies such as Indonesia and Thailand is part of a very, very global weakness, while the US recovery was so slow that even the slightest pick up is looking like a pick up. Basu said the Asian situation is no worse and, if anything, Asia is probably better off than the rest of the world.

Kiekie Boenawan at PT Schroder Investment Mgmt Indonesia sees the drop as an opportunity to buy stocks that had been overpriced such as banks and consumer shares.

Sanjay Mathur at RBS said in July that southeast Asian consumers have taken on much higher debt in the last few years, with the largest increase in Malaysia, where household debt increased by 20 percent of GDP between 2008 and 2012.

Edward Teather at UBS said there is a feeling that the rest of the world is getting a bit better and Asean had its burst of credit-enhanced growth and it’s raining already.

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Pesek’s View From Asia – Bloomberg 07-31-13

Salient to Investors:

William Pesek writes:

Najib kept his Malaysian coalition in power with a giant spending spree that included smartphone rebates for youths, household electricity subsidies and higher wages for civil servants. Fitch said Malaysia’s public finances are its key rating weakness. It will be difficult to achieve the 3 percent deficit target in 2015 without bold actions, including cutting subsidies.

In India, the only way to stop the investor exit is bold steps to increase economic growth, narrow a record current-account deficit and improve India’s investment environment.

Grim predictions that Chinese GDP growth will dip below 5 percent are no longer looking so crazy. Since its high in 2009, the Shanghai Composite Index has been the world’s worst performer.

Japan got 2 votes of confidence from key foreign investors. Hedge fund Jana Partners took a stake in Japan Airlines. and Aflac is buying Japanese government debt in contrast to a plan last year to put less money into yen-denominated assets.

New Zealand’s business sentiment rose to the highest level since April 1999. Stephen Toplis at Bank of New Zealand proclaimed New Zealand was on fire!  and it is hard to disagree. 52.8 percent of NZ companies in July expect the economy will improve over the next 12 months, growth may soon exceed 4 percent, and employment and profit expectations remain buoyant – all despite a currency many believe to be overvalued and a Chinese slowdown.

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Jim Rogers optimistic on Malaysia and asia – Jim Rogers Blog 06-24-13

Salient to Investors:

Jim Rogers writes:

  • Malaysia is making positive dramatic changes. All Asean countries are going in the right direction.
  • When the huge currency turmoil comes, bet with the creditors and not the debtors. There is no such thing as a sound currency and no country will escape unscathed, but positives changes in Asia will enable it to rebound quicker and emerge stronger.

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Mobius Buying More Malaysian Stocks; May Sell Indonesian Banks – Bloomberg 01-07-13

Salient to Investors:

Mark Mobius at Templeton Emerging Markets says the Malaysian administration has been very good for the markets and will continue to be so, and is buying more Malaysian shares on the country’s economic growth prospects. Mobius is possibly cutting back on Indonesian banks and Indian natural-resources stocks due to valuations.

The Jakarta Finance Index was at 12.3 times trailing earnings last week, while the BSE India Oil & Gas Index was at 11.1 times estimated profit. The FTSE Bursa Malaysia KLCI Index trades at 15.1 times estimated earnings, a 37 percent premium to the MSCI Emerging Markets Index

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