Asia’s Pivotal Role Reversals
US President Obama left for a long-delayed Asian trip designed to highlight a foreign policy “pivot” to overlooked commercial and military allies in Japan, Korea, Malaysia and the Philippines, as he skipped regional stock market leaders India and Indonesia in the middle of election campaigns that may signal their own departures. The four destinations are experiencing export doubts as Abenomics is also under siege with the lack of structural reforms and continued resistance to auto and agricultural opening under the proposed TPP agreement. Malaysia and Korean transportation disasters have diverted attention from the visit, and the Philippines’ slow post-typhoon Haiyan cleanup with many displaced citizens still unable to return home has turned public opinion against the Aquino administration’s initially-lauded management reputation that Washington may again reference. By the same token a previous warm embrace for India soured soon after a state dinner was hosted for Prime Minister Singh and distance has remained since although his likely successor Modi has met with American officials and business executives as $5 billion has poured into equities this year on the assumption of investor-friendly policies as during his Gujarat state tenure. However his pro-Hindu BJP party credo and track record are controversial as their parliamentary grouping could grab almost half the seats in the month-long election to secure control. Many big New York houses maintain overweight recommendations despite the high leverage of family-run listings and continued negative sovereign ratings outlooks by the main agencies. GDP growth is only 5 percent and inflation is running at almost double that level, as the current account deficit may also retrace in the coming months once exceptional gold import restrictions and expatriate deposit facilities are removed. The central bank has not raised rates or intervened with the rupee but the stance will likely change after the poll as food prices stay stubborn and currency strength at 60/dollar erodes export competitiveness. Despite fast-tracking by a high-level government committee many infrastructure projects are still blocked by provincial inaction and political spending will endanger the next fiscal year’s 5 percent of GDP deficit target. Privatization goals are still modest as state-run Oil India borrowed another $1 billion in a debut dollar bond to avoid asking banks struggling with loan impairment. They also have one-third of assets in government securities as foreign investor T-bill buying was temporarily suspended as voting began.
Indonesia’s two-stage legislative and presidential contests got underway at the same time as PDI-P favorite and Jakarta governor Jokowi disappointed in the first round capping the 20-plus percent equity rally. His economic platform is blurry as he struggles to build multi-party support for the top post. The monthly trade account went into surplus on rebuilt international reserves near $80 billion after interest rate hikes and a halt in bond market interference. Further fuel subsidy reduction has been postponed until a new team takes office although candidates regularly pivot away from that unpopular direction.
