Asia’s Simmering Small Exchange Smash
After pacing the region for the past year the Philippines and Thailand succumbed to individual jitters and broader equity flight paring gains to slightly positive as residual enthusiasm turned to long battered developed Japan on reflation bets. In the other area giant China stocks have been off 5 percent despite the strongest renimbi fix versus the dollar at 6 just prior to a regular bilateral summit in California dominated by cyber-security rather than currency and trade issues. Total social financing from banks and non-banks stands at 200 percent of GDP according to Fitch Ratings but fell sharply in May coincident with GDP growth softening to 7-7.5 percent. The new central bank head foreshadowed further interest rate liberalization as his securities counterpart overhauls IPO rules to unlock months of company backlog. Inflation is below target at 2.5 percent, but authorities remain reluctant to inject liquidity as they try to tackle property overheating and industrial overcapacity. Solar firm subsidies and aggressive expansion were in the headlines as the US and Europe pursued unfair competition actions and debt repayments were halted to foreign holders. The Philippines’ Q1 economic growth mirrored the mainland’s at almost 8 percent on the heels of attaining investment-grade status. The agencies cited better governance and tax collection which should enable the 2 percent of GDP fiscal deficit goal with a primary surplus. President Aquino’s position was reinforced by his coalition’s recent romp in Senate elections mobilizing support for new central bank and mining laws. Worker remittances from the Gulf and other regions continue to boost the peso, which has been among the few overweight recommendations by sell-side houses as officials signal selective rate reduction. The Thai baht however outperformed through May as it hit a 15-year high against the dollar before a 25 basis point benchmark cut as additional capital controls were debated. Foreign bond investors with a 10 percent stake joined the exit rush soon after amid disappointment that infrastructure projects may not be in place for the 5 percent growth forecast. Consumer credit is also rising 20 percent annually and venerated Thai tycoons have been involved in leveraged takeovers reminiscent of the pre-Asian crisis period. Major Bangkok exchange listings have touted cross-border plans for Myanmar, which just hosted a World Economic Forum meeting where Nobel laureate Aung Sung Su Chi announced her 2015 presidential candidacy and financial service providers complained of approval delays and technology lags.
Indonesia and Malaysia were previously sidelined as the former resorted to heavy rupiah intervention on a chronic current account gap aggravated by a temporary Chinese ban on coal imports, and the latter bred political animosity as a ruling party victory was challenged by numerous irregularity charges. Indonesian inflation is due to reach high single digits on fuel subsidy removal, while Malaysian transfer programs have resisted change despite perennial policy blueprints underscoring the shaky public debt foundation.
