Emerging Growth In Asia

By M. Isi Eromosele

All indications argue against a hard landing for China and other emerging Asian countries, as tightening measures aimed at managing inflation without choking off growth seem to be working.

During 2013, expect to see improved market performance in the second half of the year, with inflation worries easing and global capital flows resuming into the region.

Asia Regional Outlook

For the emerging Asia region, there will be an equity market recovery in the second half of 2013 from the underperformance of the first half, with Central Banks’ tightening measures gradually easing as inflation worries abate, particularly in China and India. Earnings growth forecasts continue to look achievable and valuations are attractive relative to other assets.

There will be no hard landing scenario for China. Government fiscal measures, such as the acceleration of affordable housing construction and accommodative monetary policies providing easier credit availability to small and medium-sized enterprises (SME) are likely to achieve the solid economic growth in 2013, as envisaged in the Chinese government’s five-year plan.

There will be a resumption of global capital flows into Asia after the summer of 2013, as investors gain confidence that economic growth in Asia is likely to be stronger than in the developed world in both 2013 and 2014, and they see more signs of the end of the monetary tightening cycle as headline inflation begins to show a clear downward trend.

In China, rising wages have been one of the main drivers of inflation, which has been offset by rising productivity levels over the past two decades. Tightened monetary policies, including interest rate and reserve requirement ratio hikes, have already been effective in decelerating inflation pressure. As a result, equity performance should improve going into the second half 2013.

In India, despite 10 interest rate hikes since March of 2010 amid inflationary pressures, the fundamentals of the economy remain positive due to strong domestic consumption.

As in China, core inflation in India has been on a structural uptrend in part due to social development policies, improving wages and increased consumption. Investors are likely to continue closely monitoring India’s wholesale produce index, particularly after the government raised diesel prices to strengthen the budget deficit.

Slowing demand from developed markets might generate headwinds for Korea and Taiwan, particularly for some tech products. Lingering investor concerns about a more significant slowdown in China’s economic growth might further weigh on North Asian exporters. On the other hand, the fact that production disruptions

following Japan’s earthquake have not had a prolonged adverse effect on component manufacturing should be positive for the sector.

Political concerns have eased in ASEAN countries, resulting in more positive sentiment among both foreign and local investors. Regional private-public-partnerships should improve business efficiency and establish needed infrastructure, while policy reforms to lift minimum wages should boost domestic consumption.

Though Asia’s economic growth will likely moderate slightly in the second half of 2013, overall growth in Asia will still expand at more than twice the pace of growth in developed markets.

Slower growth should also help alleviate inflation and inflation expectations, which have been the key worries for market investors. Several key regions are in the advanced stages of their tightening cycles, which should bode well for investor sentiment. Positive investor stance towards consumption, technology and software, infrastructure and energy sectors should be maintained.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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