Asian trade and exchange rates
Asian exporters saw their fortunes improve through the course of 2017. Asian export prices and volumes are trending up as corporate profits recover globally and currency markets return to functioning normally. The synchronised global demand expansion has further to run and so does the Asian export upcycle.But the US dollar is weakening and Asian currencies strengthening. We see both trends continuing. International Trade theory dictates that over time a depreciating US dollar will increase US export competitiveness at the expense of other non-dollar countries. Given this in Asianomics Special Report No. 1/2018, Asian trade and exchange rates, 21 February, we examine how currency movement affect trade performance and feedback to real growth in economies and the implications these hold for Asia.
We conclude that Asian is well positioned to generate growth endogenously and offset the drag from a deterioration in export competitiveness. Buoyed by rising corporate profits Asian domestic demand is recovering steadily. In seven of the ten countries we track domestic demand grew faster than GDP in 2017. China is yet to publish 2017 annual GDP expenditure numbers but we would not be surprised if domestic demand growth here surpassed GDP growth. In 2018 we expect growth to become increasingly domestic demand led as regional investment and credit cycles go into upswing.
We are confident that Asia will remain a growth outperformer in the emerging market universe and that Asian equity markets are headed higher in 2018.
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
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