``What will that collapse look like? The bubbles this time will likely appear abroad. Parts of Asia and Latin America, a tiny fraction of the size of the US economy, are experiencing large capital inflows, low interest rates, and the beginnings of a major boom. Countries with intact banking systems and access to global capital markets will lead the next speculative wave. The United States will be pulled in—probably soon enough that we will all be surprised by a supposedly robust recovery, fed by continued low interest rates and loose credit. We all know these episodes end in tears, but they can be spectacular while they last. Simon Johnson, The Next Financial Crisis: It's Coming—and We Just Made It Worse
Instead of falling from the cliff, Asian markets have gone disparate ways.
While China has taken quite a hit, some markets continue to streak upwards or has been drifting at its highest point (Thailand, Malaysia, Indonesia and India), some are slightly off the highs (Hong Kong, Taiwan and Korea) and some have been in consolidation (Japan, Philippines and Singapore).
Figure 7: Stockcharts.com: PSE, Asian, ASEAN and Emerging Markets
The Philippine Phisix (PSEC) has peaked out during the advent of August, which means that the seasonal weakness of September have seen a rangebound movement instead of a material slowdown.
Other indicators as Asian Markets Ex-Japan (DJP2) and the ASEAN (FSEAX) index corroborates on the individual actions of key Asian markets.
Meanwhile, the actions in Emerging Markets (EEM) likewise underpin the prevailing buoyant sentiment.
As September closes, we expect the correcting market of China to bottom out, while the consolidating markets to possibly reaccelerate along with the present leaders, going towards the end of the year.
One interesting observation is that while the Phisix has gone into a seeming hibernation, the Peso has finally regained footing.
Figure 8: Yahoo Finance: USDollar vis-à-vis Philippine Peso
Early September we noted in “So What's Wrong With Philippine Peso?” how the Peso has lagged its major contemporaries/neighbors for unknown reasons.
We said then that ``The Peso’s woes can’t be about deficits (US has bigger deficits-nominally or as a % to GDP), or economic growth (we didn’t fall into recession, the US did), remittances (still net positive) or current account balances (forex reserves have topped $40 billion historic highs) or interest rates differentials (Philippines has higher rates)."
So in a liquidity driven setting, where markets are supposed to act in tidal mode, what seems suspect about the rigidity of the Peso-US dollar exchange rate could have been due to the Bangko Sentral ng Pilipinas’ (BSP) attempt to massage the Peso lower in order to keep media and political favorite class-the OFWs- delighted.
Yet perhaps, the tide has been too strong for our BSP interventionists to hold the barrier off from a policy induced debasement of the US dollar which has currently filtered over to a stronger Peso.
Nevertheless, a strengthening of the Philippine Peso and a weakening of the Phisix may seem patently incompatible under today’s circumstances.
Such conundrum would probably be resolved with the resumption of foreign money flows into the Phisix.
Unless we see a substantial global correction to signify liquidity constraints via a rising US dollar index, present conditions appear to be very constructive for both the Peso and the Phisix.
No comments:
Post a Comment