Frontier Asia’s Blighted Boundaries
Frontier Asian stock markets were in the regional vanguard after overbid sovereign bonds from Pakistan and Sri Lanka, and Vietnam’s state airline offering that may herald a wave of privatizations with greater foreign access limits. Pakistan’s Finance Minister hailed the return soon after the central bank head’s resignation, as the IMF and Saudi Arabia both released loans to support a March 5 percent currency appreciation on the same pace of GDP growth the past quarter. Investors flocked to the $2 billion exposure after a 7-year hiatus despite reservations over high inflation, low reserves and perennial power and security problems. Terror attacks were again in the headlines as the Taliban threatened voters in Afghanistan for a successor to President Karzai as the US troop presence ebbs. India’s simultaneous polls drew military attention as well as front-runner Modi hinted at changes in nuclear strategic doctrine which may upset the delicate cross-border balance after a prolonged lull in Kashmir. Sri Lanka’s success was equally surprising at a yield just over 5 percent in the face of UN ostracism for refusal to submit to a civil war-related human rights probe. GDP was up 7.5 percent in 2013 although drought hurt agriculture, as monetary easing helped domestic demand and tourism was firm. The fiscal deficit remained recalcitrant above 5 percent of output with mounting arrears, but buyers of the January sovereign operation had already been resigned to hesitant progress absent a renewed IMF agreement. Last year one million visitors arrived and port and road construction funded by the Chinese has rebuilt infrastructure destroyed by the decades-long conflict and 2005 tsunami. The $20 billion Colombo Stock Exchange has blue-chip P-E ratios around 15 for conglomerates like John Keels, and the Development Bank has also been an active issuer abroad. Vietnamese equities are ahead double-digits on government plans to divest minority stakes in hundreds of companies, as the economy softened on credit decline despite recent interest rate cuts. Inflation is under 5 percent and foreign exchange reserves are near $40 billion or three months’ imports allowing controlled dong depreciation to proceed. A crackdown on democracy and religious campaigners has created a diplomatic tiff with Washington but has not derailed TPP free-trade negotiations indefinitely extended after the original conclusion goal was missed.
Mongolia was an exception to the frenzy as the end-March deadline lapsed for finding another $4 billion for the OT mining project with officials and Rio Tinto still at odds over the ownership and royalty split. GDP and inflation are both up over 10 percent, but credit has expanded at five times that clip. The balance of payments has evened on import compression and $300 million in recent samurai bond inflows, but slowdowns in Russia and China have muted previous venture capital enthusiasm as distressed-debt specialists begin to swoop. Defense links were a prominent issue in talks with American representatives who accepted a gift horse on minimal further inspection.
