Asia House Risk Outlook 2013 - Christine Shields presentation
Market risks in Asia: issues and prospectsFebruary 2013 Christine Shields Head of Country Risk Research Standard Chartered Bank 1
Asia is outperforming the rest of the world – and has more potential• Asian markets were even better than the EM average last year and should stay that way• Asia was relatively immune to the travails that beset Europe and the US despite new liquidity inflows• There were worries about China suffering a hard landing; as China’s economy shifts into its next phase, they may recur but not for a while yet• For now though, economic activity is robust across the region, bar some hotspots• And the structural worries that preoccupied the world ahead of the financial crisis are correcting so the long term outlook is good• Asian export growth exceeds the EM average, but rich world exports are falling because so much of their trade is to other rich markets; south-south trade the safety net for Asia• IMF and others have pared back their forecasts recently but the outlook for the region remains strong• Even Japan has some positives – productivity, innovation and resilience
Equity markets all up but Asia outperforms, even the EM average Index, 100=1 Jan 2012 value 120 Emerging Asia 115 110 G7 105 100 Emerging markets 95 1/1/12 1/4/12 1/7/12 1/10/12 Sources: Datastream (MSCI), Standard Chartered Research 3
Europe – ECB action reduced the probability of the union breaking up 18 10Y bond yield 16 14 12 10 Portugal 8 Ireland 6 Spain Italy 4 1/1/12 1/4/12 1/7/12 1/10/12 Sources: Bloomberg 4
CDS– tail risks of China’s hard landing and the US ‘fiscal cliff’ alsoavoided (in 2013) 5Y CDS 160 140 120 100 80 China 60 40 US 20 01/01/12 07/05/12 10/09/12 Sources: Bloomberg 5
GDP growth differentials – the tale of two worlds continues, Asiaremains strongest 2012 GDP growth estimates 7 6 5 4 3 2 1 0 Advanced Emerging Asia Africa MENA economies Economies Source: IMF World Economic Outlook 6
Global imbalances – not so wide anymore 2012 current account balances as % of GDP 12 9 6 3 0 -3 -6 CEE Africa US Latam Euro area Asia CIS MENA Source: IMF World Economic Outlook 7
World exports – EM up, rich world down Export volumes, sa, 100 = 1 Jan 2012 value 106 Emerging Asia 104 Emerging economies 102 100 Advanced economies 98 96 1/1/12 1/4/12 1/7/12 1/10/12 Source: CPB Netherlands Bureau for Economic Policy Analysis, Standard Chartered Research 8
What are the risks? • Currency wars – yen first to depreciate – will others follow? But will capital inflows to EM bring appreciation pressures there now tail risks over? • Excess liquidity fuelling inflation and asset prices – new bubbles? Where? • Regulation – will it become a noose that strangles growth? • Renminbi internationalisation – what if it goes too fast? Or too slow? • Specific issues in some countries: Political risk Security worries and disputes over resource access Another slowdown or banking crisis in the West A new wave of non-performing loans in China?
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