Country risk: China, India, Indonesia demonstrate Asian resilience


Jeremy Weltman
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Asia’s stronger performance over Latin America enters a fifth year, with a lower risk quotient in Euromoney’s crowd-sourcing survey.


Growth continues to find a way in Asia, despite the region facing myriad risks

It has been a mixed year for Asia’s markets in 2018 – as investor risk rose in Malaysia, the Philippines, Thailand, South Korea and Vietnam, and fell in others – but the region kept ahead of Latin America, according to risk analysts.

Eighteen of the region’s 27 countries became safer in Euromoney’s survey, boosting its total risk score to its highest since 2010.

Asia has consistently performed better than LatAm since the tables turned in 2014, with real economic growth in the region averaging more than 6%, compared with less than 1% among LatAm’s borrowers.

Budget balances, current accounts and inflation measures are more favourable, too, despite the differences depending on the country concerned.


Economic growth remained strong in Asia in the first half of the year, bolstered by India recovering from a slowdown caused by the demonetization of the economy and the introduction of a goods and services tax.

The region has since decelerated with the China-US trade war and with tightening global financial conditions taking effect, worsened by Beijing’s policy of deleveraging undermining business confidence.

Yet, for all its problems – including private debt concerns and, in China’s case, over hidden local-authority borrowing – the region continues to offer investors lower risk for return compared with LatAm’s emerging markets.

There may be worse to come, but the slowdown in China will be gradual, says Arjen van Dijkhuizen, ECR survey contributor and ABN Amro senior economist.

“While China’s economy shows more signs of a serious cooling in recent months, the authorities continue with taking all kinds of offsetting measures,” he adds.

They include subsidies and other forms of government support to maintain spending on cars, technology products and home appliances, to counteract the effects of slowing exports.

There is moderate monetary policy easing and improved financing conditions for local infrastructure projects.

China’s economic indicators were downgraded in 2018, but the country remains a medium-risk prospect, lying 42nd in the global rankings.

That puts China towards the top end of Euromoney’s third-of-five categories of risk, on a par with Malaysia, based on wide-ranging risk metrics.

Its growth rate will likely decelerate to its lowest in three decades, but remain above 6% in real terms.

And the economy will be stronger if authorities manage to hammer out a deal with US negotiators to put an end to the tariffs war, after agreeing on a 90-day truce in December to address what is ultimately a zero-sum game.

Robust outlook

In its latest World Economic Outlook update, the IMF sees economic growth in emerging and developing Asia sliding from 6.5% in 2018 to 6.3% in 2019, before recovering to 6.4% in 2020.

It agrees China’s expansion will moderate, but also foresees India’s economy brightening this year thanks to “lower oil prices and a slower pace of monetary tightening than previously expected, as inflation pressures ease”.

India faces political uncertainty given the elections this year, but is expected to remain the fastest-growing economy, supporting the view of Asia remaining a key engine of global growth.

There is also a view that economics has become more important than politics for influencing market volatility – a theme ECR is expecting to explore in more detail next week.

The general election in April/May will provide “an important litmus test for prime minister Modi”, say Van Dijkhuizen.

Clearly, there is some risk the ruling National Democratic Alliance will lose its parliamentary majority, which may affect its ability to implement reforms.

However, India’s risk score has held up in Euromoney’s crowd-sourcing survey, with analysts upgrading the GNP-growth outlook and employment/unemployment indicators, as well as those for government non-payments/non-repatriation, and corruption.

This offsets a drop in the government stability score.

Election year

Other elections in the region this year include concurrent parliamentary and presidential voting in April in Indonesia, lying 56th, just two places behind India in the global risk rankings.

Indonesia climbed eight places in the rankings last year, with risk experts shrugging off currency volatility after it was effectively addressed using credible policymaking.

There are general elections in Thailand in March, returning the country to some semblance of democracy after a military takeover, which has not had any particularly adverse effects on Thailand’s risk profile.

Similarly, the Philippines holds polls in May, determining the extent to which president Rodrigo Duterte can continue his unorthodox political agenda that increases the risks of investing in a country, despite strong economic growth supported by infrastructure investment and reforms to foreign-exchange rules.

The region faces plenty of other risks, including geopolitical problems spilling over from China-US tensions complicating crisis-resolution on the Korean peninsula, tensions surrounding cross-strait relations with Taiwan, and the South China Sea territorial disputes.

However, there are also reasons to remain optimistic.

Economic growth may slow, but from a rapid rate, and the region has stronger institutions and policymaking than others.

Monetary policy tightening forced on central banks to protect currencies and FX reserves is unlikely to continue indefinitely either, with inflation remaining low and balance-of-payment improvements forthcoming.

Moreover, “there is still room to add fiscal stimulus in most countries, given that public finance indicators in Asia (excluding Japan) are relatively strong”, adds Van Dijkhuizen.