Two themes, a sort of call-and-response, dominated the IMF annual meetings in Bali in October.
One was the double act of the escalating US-China trade war and the gathering momentum of a global rates-rising cycle. The other was the fact that nobody in Asia – bankers, central bank governors, policymakers – seems particularly concerned about it.
It is 20 years since the Asian financial crisis, 10 since the global sequel, and the common view among most Asian nations is that having been flattened by the first, they sailed through the second.
The result is a sense of either preparedness or complacency, or both, about the latest macroeconomic ructions.
Here’s Thai central bank governor Veerathai Santiprabhob, responding to the observation that Thailand – the place where the Asian financial crisis began – has become a safe haven, receiving several years of inflows into the Thai baht: “You can say Thailand has been lucky, but we should be given some credit for the way we have handled our economy and limited the different sources of fragility in our systems.”
Thailand has run a large current-account surplus for five years, hitting about 7% of GDP, has had the best-performing currency in Asia for 18 months and has built a stockpile of foreign-currency reserves.
Here’s the Philippines secretary for socioeconomic planning Ernesto Pernia on the trade stand-off: “We should see beneficial effects on the Philippines,” because it will export IT components that are less likely to be sold now from China.
And a CEO of a leading Asean bank: “I think countries in Asia saw this coming and are well prepared for it. Some outflows are not a bad thing. There will be a stock market correction – you can already see it – but nothing more.”
China’s different, of course; the recent reversal of deleveraging in favour of growth is a clear sign that the country is worried about the impact of US trade on national growth.
If the US does something unexpected – and with Trump at the helm, it is pretty much always doing something unexpected – Asian markets get hit
But even here, DBS is insisting “concerns over China’s macro conditions appear overblown” and is advising clients to see opportunity in the markets.
“Valuation for China equities is attractive after the correction,” says the bank’s CIO office, citing P/E multiples below 11 in the broader market, and 6.3 times (2018 earnings) for the banks, where the price-to-book ratio now stands at 0.8.
Certainly in southeast Asia, the mood is remarkably sanguine. Should it be?
While countries such as Thailand, Indonesia and the Philippines have built levels of resilience that would have been unthinkable 20 years ago, they do face the unarguable problem that investor sentiment towards them rests entirely upon factors outside their control.
High sensitivity to external shocks is just a fact of life for emerging markets, and no matter how well prepared countries are in terms of foreign-exchange reserves and fiscal space, they cannot help the fact that those external shocks are increasingly, well, shocking.
If the US does something unexpected – and with Trump at the helm, it is pretty much always doing something unexpected – Asian markets get hit.
Perhaps what one senses in Asia now is an acceptance that there is not a lot they can do about this except lay in stocks for the winter: build their local financial markets – which has been done successfully in Malaysia and the Philippines – strengthen their institutions and keep a close eye on the level of foreign holdings in their debt (notably Indonesia).
What you see in Asia now, fundamentally, is a capacity not to be surprised by anything. That’s why the most common conversation at the IMF was not whether Asian countries are heading for crisis, but whether it’s time to buy Tencent shares yet.