ANZ Economics yesterday released their quarterly take on the world – it is a brilliant read.
As Australia’s genuinely Asian-focused bank, they have some great insights on the region. So it is worth noting what they say about the recent, although receding, fears about the repeat of an Asian crisis similar to the late 1990’s.
Asia has had 16 constructive years since 1997 where the region has largely moved to current account surplus, built a large stockpile of FX reserves, reduced asset and liability mismatch, and dependence on dollar funding. Policymakers are more transparent and flexible. All this augurs well for the region avoiding what some in the market fear most – a repeat of 1997.
This chart tells the story graphically:
There is however a note of caution from Richard Yetsenga ANZ’s Head of Global Markets Research that while there may not be a crisis, a period of adjustment will occur for some time,
Periphery markets, including those in Asia and the commodity bloc, are adjusting to a more balanced global economy. This is good news. Emerging markets, led by China, are still likely to have superior growth and asset performance over the long-term.
After five years of unusually easy monetary conditions, however, emerging markets face an adjustment task in the near-term. Our analysis suggests that this adjustment is in its early phases.
The flows have been modest, many peripheral currencies remain expensive, the shift in economic momentum is likely to be long-lasting and policy normalisation in the core is only in its early stages.
This suggests the adjustment in periphery asset markets is likely to be more sustained this time. During the two previous sell-offs in EM, global policy was eased substantially, whereas on this occasion it is tightening.
It all adds up to a little more volatility for Asia and by extension Australia but no crisis – good news.
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