Investors are pulling out large sums from Asian markets; in the week to August 12, around $9.4 billion worth of selling was seen across six EM Asian markets, the highest says UBS, since it started keeping records in 2003, and way above the previous record set in August 2007.
In fact, the last five weeks have seen foreign investors sell a net $15 billion worth of equities with Taiwan and Korea seemingly the most unpopular markets. That investors would take some risk off the table was expected; after all demand in the home market is slowing across Asia, including India where the production of consumer goods slowed quite sharply to 4.2% yoy in the three months to June from 11.6% yoy in the March quarter.
Also, much like in India, investments in other Asian economies too aren?t seeing much momentum; with the capital markets almost inaccessible and debt becoming more expensive than it is, it?s hard to see companies adding capacity in a hurry. Order flows over the last six months, at major Indian engineering firms suggest a sluggish trend as does the weak off take of bank credit; more than the current year though, it?s 2012-13 that could be badly impacted by the lack of investments.
Apart from the fact that the government has been lethargic with regard to clearances and policymaking, companies over the past year or so have refrained from building capacity due to the weak global outlook. The outlook has worsened over the past month although central bankers are trying to address the sovereign debt crisis in Spain and Italy?the ECB continues to buy European bonds and says it will inject liquidity. But even Germany?s economy is almost stalling and the sharp slowdown in the US, in the June quarter during which the economy grew just 1.3%, are beginning to take their toll on Asia.
Already exports from the region are beginning to taper off after having been resilient through October last year to March this year. While India may have bucked the trend with exports between April and July having risen a remarkable 54% yoy, it?s a matter of time before anaemic global growth, now expected to come in at sub-3% in 2011, starts to hurt exports. Since the economy cannot be driven by consumption alone, especially at a time when inflation remains close to double digits and interest rates are tipped to rise further, India?s GDP is now expected to grow at just about 7.5% in 2011-12. There are still some bright spots in Asia; China is allowing the yuan to appreciate at an accelerated pace against the dollar, a move that would help rebalance the global economy. Moreover, it would also help drive consumption in Asian markets; as Morgan Stanley points out, China?s urban household income is considerably larger (probably $4.5 trn) than officially estimated and can support global growth. Corporate results for south-east Asian countries , for the June quarter, have been reasonably good: 80% of the companies that have reported numbers so far have beaten consensus estimates. Results for corporate India have however been mediocre, hurt by high prices of commodities, prompting an earnings downgrade.
Despite that valuations for India are far more sane at around 13.5 times one year forward earnings. For money to move back however, oil prices musn?t flare up and the government must speed up policymaking.