Jan 10, 2016

Asia - Economic monitor: Regional financial markets’ frazzled forecast

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Asian emerging stock markets mirrored the wreckage in global counterparts in 2015, as both the core and frontier MSCI indices fell over 15%, with just four of 50 countries in the positive column and none from the region.

In the main Asia gauge, China rallied toward year-end but was still down 10% and repeated that drop in 2016’s first trading days. India, South Korea and the Philippines slid single digits as the out-performers, while Indonesia, Malaysia and Thailand were off 20% despite December’s launch of ASEAN’s free trade zone.

In the frontier pack, Pakistan, Sri Lanka, and Bangladesh lost 20% on average, as Vietnam, seen as a low-cost labor beneficiary of the complementary Trans-Pacific Partnership with the US, dropped 5%.

In JP Morgan’s external debt index, Indonesia was flat and the Philippines up 3% in dollar terms, while local bonds were battered across the board by currency depreciation.  This year, equities could see a reshuffling of country positions and selective gains, but the overall direction remains gloomy with mediocre economic growth, household and corporate debt overhangs, and China restructuring spillover. Valuation-driven investors may be lured as Asia’s traditional price-earnings ratio premium narrows, but the macro trends are uninspiring and the best bets in 2016 may be in the few places where decisive government action begins to tackle business and financial headaches.

Greater China is a minefield starting the year, and Beijing has again intervened and halted selling as manipulation investigations catch both local and foreign banks and securities firms. The latest actions recalled last summer’s panic after a confusing few months trying to absorb currency changes, including entry into the IMF’s Special Drawing Rights and peg management beyond the dollar against a basket of a dozen developed and emerging market units.

The central bank reported that Yuan balance sheet holdings fell a record $300 billion in November as the Washington-based Institute for International Finance estimated over $500 billion in 2015 capital outflows. Officials pledge exchange rate stability, citing fiscal and trade fundamentals, but monetary policy will stay loose according to the Central Economic Work Conference, and the current account surplus increasingly relies on import compression.

The GDP growth target is 6.8% but it is now hedged by public recognition of industrial overcapacity and bad real estate and local government loans. Even the Beige-Book alternative private sector reading has turned gloomy with its latest survey showing 30% profit decline in manufacturing and services.

Yuan scenarios drifting toward 7/dollar and double-digit earnings losses deter foreign investors both in Shanghai and Hong Kong, where the three-decade old dollar peg was whipsawed by the inaugural US Federal Reserve 25 basis point rate hike and Beijing’s policy moves.

The monetary authority spent heavily in currency defense against normalization and transition “shocks.” Yuan-denominated savings fell 15% and home sales 30% in November, with household debt at an historic high 65% of GDP. Stock exchange sentiment has also been poor in Taiwan, after a 15% MSCI slide in 2015, on the eve of presidential elections where the opposition DPP party is set to triumph. GDP growth is only 1% and the central bank has cut rates to battle deflation as life insurers, the main institutional investors, prefer overseas assets.

India faded as last year’s darling even though 7% consumption-led growth could exceed China’s as economic statistics are under challenge, including inflation measures due to worsen with poor monsoon food output.

Prime Minister Modi has been stymied in parliament on liberalization and modernization proposals, most recently on national tax system introduction and bankruptcy reform. He has hesitated on state-owned banking sector rescue crucial to financing infrastructure, and this year equity enthusiasm will remain muted pending delivery on overdue promises and changes.

Indonesia may gain favor after President Jokowi’s Cabinet reshuffle bringing in business-friendly ministers, and the addition of a coalition partner for a legislative majority. Commodity export prices are still a damper, but such relative improvements can defy the coming year’s low expectations and political and financial system stagnation.

Gary N. Kleiman

Gary N. Kleiman is an emerging markets specialist who runs Kleiman International in Washington, D.C.


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Taiwan - ‘Foreign bride’ from Cambodia to make history in Taiwan vote

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A woman derided as a “foreign bride” after her cash-strapped Cambodian family married her off through a broker is set to make history at Taiwan’s elections next week.

Lin Li-chan is running for lawmaker in the parliamentary vote -- held alongside the presidential election -- and is expected to win, making her the island's first "new immigrant" legislator.

The term refers to those who came to Taiwan after the first wave of migration from China post-1949, when the island split from the mainland following a civil war.

"I had never thought about going into politics. In Cambodia, democracy was not a familiar concept," Lin, told AFP.

"It's unbelievable how life turns out."

Now 38 and a Taiwanese citizen, she was set up by her mother with a Taiwanese husband via a profit-making brokerage at the age of 20.

She moved from the Cambodian capital Phnom Penh to become one of Taiwan's tens of thousands of immigrant spouses, mainly from Southeast Asia and China.

Their vulnerability has been highlighted by abuse cases in recent years and Lin wants to draw on her own experiences to improve that.

"My father had passed away and my mother was struggling financially at that time. She decided to marry me off and the relatives on my father's side were angry, thinking she sold me to Taiwan," Lin said.



"'Foreign brides' like us were labelled as products and looked down upon."

Unable to speak a word of Chinese, Lin was wracked with homesickness but determined to adapt.

She picked up the language as she took care of her two children and helped at her husband's small hardware factory.

But when her children doubted she could help with homework because of her Chinese, Lin decided to go to college.

She went on to university and a master's degree before becoming an award-winning campaigner for new immigrants.

"I took my graduation robe to Cambodia when I went back to sweep my parents' graves and tell them the good news, and I cried," Lin said.

- Signs of progress -

There were more than half a million foreign spouses in Taiwan in 2015, with many marriages arranged by matchmaking brokerages.



Demand for the service is partly driven because there are more men than women of marrying age in Taiwan, and more Taiwanese women are delaying marriage until later in life.

Taiwan banned profit-making brokerages in 2009 and allows only government-authorised organisations to provide international matchmaking.

The move came after a string of high-profile abuse cases including one of a Taiwanese man who enslaved and tortured his Vietnamese ex-wife for seven months. He was jailed for just four-and-half years.

Campaigners say the situation is improving and the term "foreign bride" is now deemed derogatory. But discrimination remains.

"There is still negative public perception that the women are bought and they come to Taiwan to make or con money," said Hong Man-chi, a spokeswoman of TransAsia Sisters Association, a support group for overseas spouses.

Some employers offer low wages or demand they work overtime without pay, Hong says, knowing they are unfamiliar with labour laws.

A number of politicians have also been criticised for making derogatory public remarks about the women.

"Lin's nomination symbolises some progress," adds Lisa Huang, a spokeswoman for Taiwan International Family Association.

"But it remains to be seen whether hers is an isolated case of success or an overall improvement."

Lin is number four on the list of "at-large" candidates for the ruling Kuomintang (KMT), seats allocated to a political party based on vote share.

At-large candidates tend to be political novices with expertise in academia or social advocacy.

With the party expected to win around 10 such seats, she is almost guaranteed a place in parliament.

Looking back, Lin -- who is still with the husband she married at 20 -- says she does not bear any animosity to her mother.

"I was a naive young woman and I didn't think too much about it. I just obeyed my mother's decision."

Now she wants her experiences to make a difference.

"I hope I can do more for new immigrants as a lawmaker," says Lin, who now considers herself Taiwanese.

"I think I have a mission to come to Taiwan... that a foreign woman who didn't speak or read a word of Chinese can go this far. I think it's fated."

Amber Wang


Business & Investment Opportunities 

Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994. 

Vietnam - HSBC projects further dong devaluation

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HCMC - HSBC Bank has predicted the State Bank of Vietnam (SBV) will pare back intervention and allow the domestic currency to depreciate further in the coming months as the central bank’s foreign exchange reserves are getting increasingly thin.

In its macroeconomic report released on January 6, HSBC said the widening trade deficit is piling pressure on the Vietnam dong and foreign exchange reserves.

The Vietnam dong-U.S. dollar exchange rate has been at the upper side of the central bank’s band since early 2015. The pressure on the domestic currency has intensified due to the heightened yuan weakness.

In the last quarter of 2015, the SBV kept its promise to refrain from devaluing the dong further out of a desire to maintain a stable currency. However, since the central bank’s foreign exchange reserves are increasingly thin as import cover had fallen to 2.1 months as of the third quarter of 2015, the agency is likely to pare back intervention and allow the currency to weaken further in the months ahead.

Early this week, the central bank launched a new fixing mechanism that allows for a more market-based setting of the reference rate for the currencies.

Besides, with growth having firmly shifted gears to the 6-7% range, HSBC predicted inflation to rebound emphatically in the second half of this year, though the uncertainty around this outlook is quite high, given the difficulty of forecasting the path of oil prices.

“What we do know, however, is that some administered prices, such as school fees, will be increased this year. Together with base effects from stabilizing oil prices and a likely pick-up in food inflation, we forecast headline inflation to pick up to 3% year-on-year by the end of the first half and hit 5.1% year-on-year by the end of the second half, breaching the central bank’s target,” the bank said in the report.

The central bank has sounded more relaxed about the price outlook. In a recent interview with local media, SBV governor Nguyen Van Binh explained that the central bank intended to keep policy rates stable at current levels if inflation is contained in the 3-5% range.

He also said the central bank would target annual credit growth of 18% year-on-year though this could be raised as high as 20%, HSBC commented.

Even if credit growth is managed at the lower end of the target and core inflation stays contained due to further commodity price disinflation, it would be prudent to commence gradual tightening in the second half of the year to mitigate the risks of another overheating of the economy. In the past, a tilt towards an overly pro-growth policy has resulted in credit booms and overheating, which ultimately led to currency instability and required sharp policy tightening to reverse.

As such, HSBC expected the central bank to switch to a tightening mode this year. However, the aforementioned comments by the central bank governor, as well as the recent shift in the government’s policy stance towards a more pro-growth orientation, raise the risks that tightening will be delayed.

“Given that, we are less than half way through financial sector reforms and bank balance sheets remain fragile, we would be worried if credit growth begins to consistently top 20%,” it added.

In the report, HSBC maintained its 2016 gross domestic product (GDP) forecast of 6.7% year-on-year for Vietnam, which is in line with the government’s growth target. The bank raised the 2017 forecast by 0.1 percentage point to 6.8% year-on-year.

Dinh Duy


Business & Investment Opportunities 

Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994.