Asia is witnessing bourses and currencies coming under pressure, funding costs are rising, and some company balance sheets are coming under stress. The road may be rocky in the near term, particularly for the largest deficit countries India and Indonesia but we don't think this is the Asian crisis all over again, S&P said in a report.
The past few months haven't been pretty. In early May, US Federal Reserve chairman Ben Bernanke discussed in a speech the likely timing of the start of Fed tapering (that is, lower bond purchases).
Since then, market participants have sold assets in the markets with the highest risk, sometimes aggressively. And emerging economies in Asia have certainly seen their share of the sell-offs.
The Asia ex-Japan currency index has depreciated by 4.6% against the US dollar since early May, with the
Indian rupee being the worst performer in the region, falling by 13.1% in the past three months, regularly touching fresh all-time lows against the dollar.
India and Indonesia are witnessing rising external financing risks that can have negative repercussions on domestic growth through tighter financing constraints and lower confidence. Political factors are adding to the volatility.
India and Indonesia have elections scheduled for early 2014 and, as a general rule, the political calendar tends to delay the reform process. Working in the other direction is market pressure. Continued pressure on the currency and asset markets as well as the real economy bolsters the case for reform, S&P said.
However, S&P adds we do not see a repeat of the Asian financial crisis. Or, in India's case, a repeat of its 1991 crisis that necessitated an approach to the International Monetary Fund. To get to this scenario, we would need a major escalation of the market turbulence, likely combined with some rather serious policy mistakes, which we believe is unlikely.