Clouds over Asia

Asia's role as the world's growth engine is waning as economies across the region weaken and investors pull out billions of dollars amid the US decision to scale back stimulus measures and a possible military strike on Syria.
Asian markets fell sharply yesterday, while oil prices rose and emerging market currencies sank, as the West stepped up preparations for actions against Syrian government forces, fanning concern that unrest will disrupt Middle East oil supplies.
Stockmarkets in India, Thailand, Philippines and Indonesia have seen big declines since May this year. The currencies of these countries -- highly volatile for long -- weakened significantly against the dollar.
The Indian rupee has dropped by nearly 4 percent to a new low of 68.85 to the dollar yesterday -- the lowest in 20 years -- amid growing concerns over the health of its economy, as a surge in oil prices threatened to worsen the current account and push the economy toward its biggest crisis since 1991.
The slide of the Indian currency is poised to cause some major dent to Bangladesh's garment business abroad, as the two neighbouring countries compete in the same segment globally.
“Even the confirmed orders will go to India if the rupee continues to decline this way,” said Abdus Salam Murshedy, former president of Bangladesh Garment Manufacturers and Exporters Association.
But Zahid Hossain, lead economist of World Bank Bangladesh, said the depreciation of Indian rupee has both advantages and disadvantages for Bangladesh.
"The competitiveness of Indian exporters will go up. On the other hand, Bangladesh imports a lot of raw materials such as fabrics and cotton for its garment industry. As a result, our production cost will go down," he told The Daily Star.
The clouds forming in Asia as liquidity tightens and China's slowdown curbs demand for commodities and goods are fuelling a sell-off of emerging-market stocks, reversing a flow of money into the region in favour of nascent recoveries in the US and Europe, according to Bloomberg News.
“The eye of the storm is directly above emerging markets now, two years after it hovered over Europe and four years after it hit the US,” said Stephen Jen, co-founder of hedge fund SLJ Macro Partners LLP in London.
“This could be serious for Asia.”
The $3.9 trillion of cash that flowed into emerging markets over the past four years has started to reverse since US Fed Chairman Ben Bernanke announced in June that the American central bank would start winding down its bond purchases later this year if the economy continues to improve as expected.
The plan has raised concerns among investors and some emerging economies about depreciation of currencies and possible financial instability.
“The emerging Asia story is crumbling and dollar is once again the king,” said Indranil Pan, chief economist at Kotak Mahindra Bank in Mumbai.
Foreign investors, who flooded into the region the past five years, are turning tail from places like Indonesia, Malaysia and Thailand, according to the Wall Street Journal.
“The pendulum is swinging back in favour of the advanced countries,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd.
"We've entered a tougher, more difficult period for Asia."
“It seems now the pain is going to be in the emerging markets,” said Nitin Mathur, an analyst in Mumbai at Espirito Santo Investment Bank who expects sectors with higher valuations such as consumer goods to suffer the biggest declines.
One bright spot is Japan, which has seen its economy bounce back on Prime Minister Shinzo Abe's fiscal and monetary stimulus.
“Asia still has potential in the next three years or more, but in the shorter term, momentum for business is slowing down,” said Shuichi Hirukawa, senior fund manager at Mizuho Asset Management Co. in Tokyo.
“Investors may become more cautious.”
The slowdown in economies such as Indonesia and Thailand is part of a “very, very global” weakness, World Bank Chief Economist Kaushik Basu told reporters in New Delhi yesterday.
“I don't think the Asian situation is any worse. In fact, if anything, Asia is probably better off than the rest of the world.”
That may not help markets in Asia as money continues to flow back to Europe and the US, said Oliver at AMP Capital.
Stephen Schwartz, chief Asia economist for BBVA, said he does not think that the continent was facing crisis it saw in 1997.
“If the Asian financial crisis was a 10, I'd still be on a 3. My instinct is this is a short term portfolio adjustment that will pass."
“These episodes are comparable only in the sense that it was a period of big capital inflows and then outflows. But the underlying conditions are very different from 1997,” the former International Monetary Fund official told the Wall Street Journal.