Asian Crisis Watch: Bears Claims Third Bourse: Indonesia's JKSE!

Bourses of three Asian nations fell into bear markets in the last two days. 

Yesterday it was the Hong Kong's Hang Seng. Earlier today, Taiwan's TWII. And the latest, the first of the ASEAN majors, Indonesia's JKSE.

These three bourses now joins China's equity markets operating under the bear's dominion. China's stocks peaked last June and crashed through July. But because the Chinese government wanted to maintain the bubble, massive interventions and controls implemented by the authorities, which I call the Xi Jinping Put, transformed China's stock market into a Frankenstein market.

(As a side note, Chinese stocks crashed again today. This week's slump essentially gave up almost all the gains from the government's massive support!)

The JKSE closed Friday with heavy losses to the tune of 2.39%.

Today's loss compounds on the earlier series of equity price hemorrhages since the JKSE peaked last April. The JKSE as of today has been down 21.5% see chart from Bloomberg.

Sad to say that Indonesian President Widodo, who graced the Indonesian bourse last May, which was then drifting at record highs, in order to convey his wish of JKSE 6,000 during his term, won't likely be met soon.

Instead, such can be seen as the culminating event of a credit driven mania.

Indonesia's stock market miseries can be traced to another closely associated symptom--the crashing currency, the rupiah. 

The Indonesian rupiah has lost some 18% since January 2014. Above is chart of the USD-IDR from investing.com

I have noted last May that a tanking currency has limits or will eventually reach a breaking point to have a significant impact on the economy:

The rupiah has been taking it to the chin and now has crashed to record levels. Question now is: To what extent will the current ‘capital buffers’ hold in the prospect of a sustained US dollar juggernaut vis-à-vis the rupiah??? Where is the breaking point for the system to snap?

If Indonesia’s system wilts and eventually cracks how will this affect the entire region? Do the big bosses of the BSP and their hordes of economists know?...

So what happens if Indonesia’s financial conditions shatters? Will capital flight be limited to Indonesia or will it spill over to the region and to the Philippines?

So far, the first manifestation of Indonesia's plummeting currency has been the stock market. The next will likely be the real economy, which will then spillover to the banking-finance sector. The said linkages should forge a feedback loop between them that raises the risks of a systemic credit event. 

Should this feedback process intensify, then this may lead to either recession that incites a crisis or vice versa (a crisis that may trigger a recession). 

Yet should more of Asian markets fall under the bear's realm, the greater the likelihood of an Asian Crisis 2.0 (2015/2016)

Phisix 7,600, Falling Peso and The $483 Billion Xi Jinping Put

In this issue

Phisix 7,600, Falling Peso and The $483 Billion Xi Jinping Put

China’s Stock Market Crisis: The $483 Billion Xi Jinping Put

-Doubling Down on the  Fading Effects of Earlier Measures

Phisix: Bulls Recapture 7,600 as Peso Falls and as Signs of Liquidity Stress Deepens

-Liquidity and the PSEi

-Phisix 7,600: Divergences Re-emerge

-More Signs of Liquidity Issues: Flattening Yield Curve and Falling Peso

-Falling Currency: Indonesia’s Economic Troubles as Paradigm

-SMC Vulnerable To A Weak Peso

-Bubble Mentality: Survey Reveals 30% of Philippine Residents Believe in Unicorns (Developed Economy Status)

NOTICE: 

I am having a very difficult time publishing this post. And I have given up trying. 

Anyway I have created a Google document link from where you may access my article. 

Pls click on this 

or cut and paste below to your url 

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China’s Stock Market Crisis: The $483 Billion Xi Jinping Put

I recently predicted that the degree of urgency of China’s stock market crash would prompt the Chinese government via its central bank, the People’s Bank of China (PBoC), to conduct their version of Abenomics^[1].

The Chinese government through her central bank, the People’s Bank of China (PBoC) may take a page out of Bank of Japan’s Abenomics to conduct direct (or indirect) stock market interventions via a QE.

This seems to have been fulfilled last week.

The initial effects of the Chinese government’s motley assembled measures of credit easing, credit infusion, information control and censorship, price and capital controls to rescue the embattled Chinese stock market seem to have faded last week. The three day 12+% buying rampage suddenly transformed into a two session of nearly 5% in losses.

Since selling have now become stringently regulated, Chinese authorities seem to think that stocks can only go up eternally. Hence the two day losses incited the political leadership to announce a fantastic stock market support program backed by the PBoC.

From the Bloomberg^[2] (bold mine): China has created what amounts to a state-run margin trader with $483 billion of firepower, its latest effort to end a stock-market rout thatthreatens to drag down economic growth and erode confidence in President Xi Jinping’s government. China Securities Finance Corp. can access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders, according to people familiar with the matter. The money may be used to buy shares and provide liquidity to brokerages, the people said, asking not to be named because the information wasn’t public. While it’s unclear how much CSF will ultimately deploy into China’s $6.6 trillion equity market, the financing is up to 25 times bigger than the support fund started by Chinese brokerages earlier this month.

And part of this massive stock market backstop emanates from a combined Rmb1.3tn ($209bn) of banking loans from 17 banks that includes the 5 largest state owned banks— Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications —which has provided more than Rmb100bn, according to the Financial Times.

China’s $483 billion of stock market support through China Securities Finance Corp. doesn’t seem to even include buybacks and other equity rescue activities by state owned enterprises and from other non-brokerage perhaps local government owned entities.

While different in form or technicalities in implementation, the Chinese government’s half a trillion stock market subsidies almost compares with the 80 trillion yen (US$ 670 billion) stock market support by the Bank of Japan.

Combined with the debt for bond swap now totaling 2 trillion yuan ($ 322 billion), aside from various stimulus measures instituted in 2014 ($ 81 billion in bank injections, $24.6 bonds for railways,$16 billion loans to small enterprises and to agriculture and $300 billion for low income housing under the pledged supplementary lending program and more), the Chinese government’s bailouts appear to have already vastly exceeded the 4 trillion yuan ($586 billion) stimulus of 2008.

And such massive debt financed stock market and economy comes as “Outstanding loans for companies and households stood at a record 207 percent of gross domestic product at the end of June, up from 125 percent in 2008” according to the Bloomberg

And as systemic debt continues to swell, the US credit rating agency S&P issued a warning last week on the prospects of rising defaults on Chinese corporate bonds (as well as US bonds). China’s corporate debt represents 160% of GDP.

Experts who diminish the impact of China stock market imbroglio say that only 90 million of gamblers and a few thousands of listed companies have been involved, yet why the half a trillion billion stock market bailout?

Doubling Down on the  Fading Effects of Earlier Measures

Could it be perhaps that the Chinese government shuddered when they realized that crashing stocks has showed signs of filtering into the property sector where stock market losses have prompted many to liquidate and or even cancel recent property purchases? 

So far the side effects from the stock market crash on the real economy have been mainly about sentiment. But what if sentiment segues into issues of liquidity, equity valuations and debt?

What happens when markets realize that the government’s price controls and interventions may also lead to conflict over valuations?  For instance, how will banks and their clients agree on how and what to value billions of equity derivatives especially for those issues that have been suspended?  

What if the injunction for major investors to sell and or a clampdown on short selling would translate to the need to raise cash? Given that stock market exit has become a politically restricted activity, what should stop people from diverting their selling activities from the stock market into other non-stock market household or corporate assets such as properties and or even commodities?

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Indonesian Government Imposes Foreign Exchange Controls: Limits Use of Foreign Currencies in Domestic Transactions

I recently pointed out of the growing risks in the ASEAN region, particularly in Indonesia. 

The rupiah has been taking it to the chin and now has crashed to record levels. Question now is: To what extent will the current ‘capital buffers’ hold in the prospect of a sustained US dollar juggernaut vis-à-vis the rupiah??? Where is the breaking point for the system to snap?

If Indonesia’s system wilts and eventually cracks how will this affect the entire region? Do the big bosses of the BSP and their hordes of economists know?

(note: I made an error in my previous post where I mentioned Indonesia’s currency as ‘ringgit’ instead of the ‘rupiah’. Changes had been made above)

Well, in the face of crashing rupiah and record high stocks, the Indonesian government just imposed foreign exchange controls

The Nikkei Asia reports: (April 13; bold mine)

Bank Indonesia, the country's central bank, will require all companies to use the rupiah for domestic transactions starting July 1 to bolster the currency.

In recent months, domestic transactions using foreign currencies, mostly the dollar, have been running around $6 billion a month. Manufacturers, particularly, frequently engage in this sort of trading.

The central bank will impose sanctions on those using foreign currency in domestic cash and noncash transactions, with some exceptions for the government budget and financing of strategic infrastructure projects, with central bank approval. The restrictions were introduced in 2011, but had little effect since there were no clear penalties for breaking the rules.

Eko Yuliantoro, acting head of the central bank's Department of Currency Management, said Thursday the bank will impose penalties on companies or individuals that do not comply with the rules. Violations are punishable by imprisonment up to one year and a fine of up to 1 billion rupiah ($77 million). The bank has formed a task force with the ministries of Finance, Trade, Home Affairs, Tourism and other authorities to oversee implementation of the rules.

Bank Indonesia Gov. Agus Martowardojo said Friday that as of April 7, the rupiah had fallen 4.85% since Jan. 1 and that the trend may continue through the rest of the year. He said it would be difficult to reverse the bearish trend in the rupiah through market intervention. "To address the vulnerability in the national economy, a disciplined monetary policy will be required," Martowardojo added.

According to the central bank, the total foreign debts of Indonesian companies, including state-owned enterprises, has reached $163 billion and only 26.5% of that is hedged. As the U.S Federal Reserve is expected to raise interest rates in the future, a move that could trigger further appreciation of dollar, he will ask all companies in Indonesia to improve their foreign fund management and hedge their dollar exposures.

For the Indonesian government to drastically impose foreign exchange controls appears to highlight signs of desperation from the sustained downside volatility of her currency.

The exchange controls had actually been announced last week, April 9, based on a report from Reuters.

Yet the USD-rupiah has been rising despite the proposed imposition of capital controls this coming July.

The currency markets may have seen or interpreted the government’s actions as potentially contributing to the weakening of Indonesia’s economic conditions or has read through the government's seeming panic, or has downplayed on the purported effects of such capital controls.

The weak rupiah appears to have temporarily benefited the Indonesian economy in terms of record FDI’s in 2014 (see chart here). But this appears as being neutralized by resident capital flight. The upsurge in dollar based transactions—“running around $6 billion a month”—have likely been symptomatic of this.

And in recognition of the risks from the vagaries of capital flows, the Indonesian government dangles tax incentives to foreign firms to stem the risks of capital flight.

From the Wall Street Journal (April 10)

Indonesia will start offering foreign investors a lower tax bill if they reinvest profits here, a measure that could stem capital flight as the U.S. prepares to raise interest rates and buffer the economy from “uncomfortable” rupiah weakness, the finance minister says.

Starting later this month, companies that reinvest dividends will receive a 30% deduction on their taxable income over six years, Finance Minister Bambang Brodjonegoro said in an interview. Those businesses also will be able to use losses to offset profits for up to 10 years, compared with five currently. Other incentives include lengthening tax holidays for certain industries, including the petrochemical sector, which is the biggest recipient of foreign investment in the country.

The tax incentives would be aimed at keeping foreign capital within Indonesia’s borders, a move Mr. Brodjonegoro hopes will stem an exodus of hot money if the U.S. Federal Reserve raises interest rates, as expected later this year. Foreign capital dominates markets in Southeast Asia’s largest economy, and hints of rising rates in 2013 sent both the rupiah and the local stark market into a nose dive.

Nevertheless, Indonesia’s record low rupiah has only caused external trade to plummet as both February exports and imports have crashed to 2008 levels!

February exports and imports plunged 16.02% and 16.24%, respectively according to Reuters.

The surge in currency volatility has apparently contributed to the immense distortion of the Indonesia’s entrepreneurs’ economic calculation and coordination process that has led to the trade collapse! Just how will entrepreneurs do their profit –cost analysis with such intense forex price fluctuations? 

The crash of her external trade has hardly improved her current account deficit. Capital flight could have also been a factor.

Even more, mounting government expenditures comes in the face of growing indications of economic weakness. Add to these the enormous $163 billion of foreign debts where only 26.5% has only been hedged.

So aside from potential shift in the Fed's ZIRP (zero bound policies), the rupiah's weakness has been structural--specifically, a product of domestic policies that has been transmitted to the economy via boom bust cycles.

Well, foreign exchange controls will have unintended consequences.

As Cato Institute’s monetary economist Steve Hanke explained in 1998 (bold mine)

When convertibility is restricted, risk increases, and so the risk-adjusted interest rate employed to value assets is higher than it would be with full convertibility. That’s because property is held hostage and subject to a potential ransom through expropriation. As a result, investors are willing to pay less for each dollar of prospective income and the value of property is less than it would be with full convertibility.

This, incidentally, is the case even when convertibility is allowed for profit remittances. With less than full convertibility, there is still a danger the government will confiscate property without compensation. This explains why foreign investors are less willing to invest new money in a country with such controls, even with guarantees on profit remittances.

So investors become justifiably nervous when it seems a government is considering imposition of exchange controls. At that point, settled money becomes “hot” and capital flight occurs. Asset owners liquidate their property and get out while the getting is good. Contrary to popular wisdom, restrictions on convertibility do not retard capital flight, they promote it.

While the prospective implementation of forex restrictions has been directed at domestic transactions by local enterprises and individuals, it won’t be far fetched where capital controls may spread to foreigners.  Failed interventions beget more interventions

So despite the record setting stocks via the JKSE , I expect the current capital flight dynamics in Indonesia to intensify. And such would magnify the risk of a regional contagion.

While Asia Central Bankers Need to Go Easy on Rate Cuts, They will Cut Rates Anyway

Frederic Neumann co-head of HSBC’s Asian economic research counsels Asian monetary authorities to go slow with interest rate cuts. Writing at the Nikkei Asia “Asia needs to go easy on rate cuts”, he provides three reasons: (bold mine)

The trouble is, it will prove only mildly effective and, in some cases, possibly counterproductive. That interest rate cuts help to ease the debt servicing burden of indebted consumers and companies is not in doubt. But, in most economies, it seems unlikely they will exert a lift through their second, more potent channel: faster credit growth. Take India. State banks, which dominate the financial system, are saddled with non-performing loans. Many large companies, too, are stuck with too much debt. Rate cuts alone, therefore, may not boost spending. Thailand, Malaysia and South Korea face similar challenges.

Translation: When company balance sheets have been hocked to the eyeballs with debt, borrowing will about debt rollovers rather than capex. And that's if there will be borrowings at all. You can lead the horse to the water, but you cannot make it drink.

The second point is that rate cuts, to the extent that they spur lending, may fuel growing imbalances that could ultimately push economies deeper into a disinflationary, if not deflationary, trap. Leverage in Thailand, for example, is already high, especially among consumers. Cutting interest rates could provide a temporary boost to spending, but at the cost of driving debt ratios even higher. In Australia, too, further easing will add fuel to the booming housing market without curing the underlying problem: a deflating mining investment boom. China also comes to mind, with blanket easing doing little to correct imbalances.

Translation: When company balance sheets have been hocked to the eyeballs with debt, borrowing will about debt rollovers rather than capex. More companies will resort to Hyman Minsky’s Ponzi financing. With insufficient cash flows for debt servicing, companies become heavily reliant on using debt to service existing debt. Asset sales function as a compliment. In short, Ponzi finance=Debt IN debt OUT + asset sales. And this is why the need to spike asset values as they provide bridge financing for debt.

Unfortunately as Mr. Neumann rightly points out, increasing use of Ponzi finance signifies heightens the risk of ‘debt’ deflationary trap.

Third: Easing monetary policy exposes countries to greater financial volatility down the road. The Fed, of course, may raise rates only gradually in the coming years. But the dollar looks set to strengthen further. In itself, this may not be enough to drive capital out of the region. Still, if local central banks overplay their hand and ease too aggressively, especially with no improved growth prospects to show for it, investor jitters might return. The "taper tantrum" of 2013, when investors dumped risky assets, was a painful reminder of the vulnerability of emerging markets when the Fed starts to move. Indonesia, especially, looks exposed.

Translation: In a financial and economic landscape where asset sales become complimentary to debt IN debt OUT, today’s asset market pump have likely been about the use of inflation in asset markets to generate cash flows to service debt.

And because asset market inflation are unsustainable this leads to “greater financial volatility”. 

In addition, a general use of Ponzi financing can become a systemic issue. 

From Wikipedia (bold mine): If the use of Ponzi finance is general enough in the financial system, then the inevitable disillusionment of the Ponzi borrower can cause the system to seize up: when the bubble pops, i.e., when the asset prices stop increasing, the speculative borrower can no longer refinance (roll over) the principal even if able to cover interest payments. As with a line of dominoes, collapse of the speculative borrowers can then bring down even hedge borrowers, who are unable to find loans despite the apparent soundness of the underlying investments.

So even mainstream can see what I am seeing.

While the advise to monetary authorities of the diminished use of zero bound rates has been commendable, I doubt if such will be heeded.

Reasons?

Political agenda will dictate on monetary policies. Incumbent political leaders would not want to see volatilities happen during their tenure, so they are likely to pressure monetary authorities to resort to actions that will kick the can down the road. Here is an example, Turkish central bank yielded to the Prime Minister’s repeated demand for interest rate cuts. The Turkish  central bank trimmed 25 basis points for both overnight lending and borrowing rates yesterday

In short, authorities are likely to be concerned with short term developments. And political agenda will most likely revolve around popularity ratings and or the next election—or simply preserving or expanding political power.

Next, there is the social desirability bias factor. Monetary authorities won’t also want to be seen as “responsible” for a volatile environment. They don’t like to be subject to public lynching from market volatilities.

Third, there is the appeal to majority and path dependency. Since every central banker has been doing it and have long been doing it, they think that they might as well do it and blame external factors for any untoward outcomes. Again the cuts of central banks of Turkey and the record low rates by Israel two days back brings a tally of 21 nations on an easing path in 2015. 25 actions if we consider the multiple actions by some countries (Romania and Denmark) as I noted last weekend.

Asian central bankers are likely to embrace the “sound banker” escape hatchet as propagated by their political economic icon—JM Keynes: 

A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.

So expect more rate cuts ahead.

As a side note: Indonesia "vulnerable"? Hasn't Indonesian stocks been at record upon record highs? Has record highs not been about a risk free environment? Of course, opposite record high stocks have been a milestone high USD-Indonesian rupiah.

Yesterday, Thailand’s SET suffered from a Massive Convulsion! More signs of ASEAN's Deflating Bubbles

I was startled to see this…

(chart from stockcharts.com)

I thought the above signified  a data error. I checked and found out that this has been accurate…Thailand’s SET suffered from a massive intraday CRASH! The SET collapsed by as much as a shocking 9.2% (!!!) before a late day recovery. The SET closed the session down by still a whopping 2.41% decline! 

Yesterday’s loss compounds on last week’s 5.18% slump!

From the Bloomberg:

Thailand’s benchmark stock index fell the most in 11 months as energy companies slumped on a rout in crude and investors speculated this year’s rally was excessive relative to earnings prospects.

The SET Index (SET) dropped 2.4 percent to 1,478.49 at the close, taking a five-day decline to 7.5 percent. The gauge briefly tumbled as much as 9.2 percent in afternoon trading before recovering most of its losses. PTT Exploration & Production Pcl (PTTEP) retreated for a seventh day, while its parent PTT Pcl (PTT), Thailand’s biggest energy company, tumbled 4.9 percent. The two stocks represent about 10 percent of the SET Index by weighting.

“Thai stocks have been hit by foreign selling as investors pull out from emerging markets,” said Mixo Das, an Asia ex-Japan equity strategist at Nomura Holdings Inc. in Singapore. “A large listed oil-and-gas sector and expensive valuations relative to history are adding more pressure.”

The report rationalizes that “this year’s rally was excessive relative to earnings prospects”. 

Well as I have been saying, stocks are driven by liquidity, credit and confidence. The latter of which is a product of the the former two.

Two weeks back I wrote,

To sum it up, since 2008, stocks have NOWHERE been about G-R-O-W-T-H, but about LIQUIDITY and CREDIT from which CONFIDENCE or MOMENTUM has been a product of. Expand liquidity and or credit, then financial assets (stocks, real estate, bonds etc…) booms, regardless of the direction of the economy.

Hounded by negative real rates via zero bound (financial repression), the public response to such policies have been to chase on yields even when they have been pillared from gross misperceptions.

Yet take away credit and liquidity, the illusion of CONFIDENCE and MOMENTUM evaporates.

The same factors can be seen in Thailand whose economy has been walking a tightrope between stagnation and recession but whose stocks, via the SET, like the Philippines (whose chart also has been replica of the Phisix) have been approaching milestone highs. The SET has been up 23% y-t-d as of Friday.

Take away credit and liquidity, the illusion of CONFIDENCE and MOMENTUM evaporates: "This year's rally was excessive" 

Clues had already been present, Thailand’s banking loan growth was reported to have registered a huge decline in 3Q 2014—a sign of diminishing liquidity. I wrote:

Despite the marked slowdown in the Thai economy, and the reported recent slowdown in bank lending, it is still surprising to see lofty levels in credit expansion in the private sector in 1H of 2014 (left), but money supply seems to have plateaued for the year

Again, the SET episode simply demonstrates that global and regional deflationary pressures have returned big time!

Oh by the way, I earlier posted that the Indonesian rupiah have reached at ALL time lows. 

I guess the pressures on the currency has spilled over to her stock markets as the JKSE at presently trades down by sizeable 1.8+%. The JKSE as I posted last week has a minor head and shoulder formation: a break of around 4900 would extrapolate to a considerable downside if the chart's portent should be validated. 

Deja vu 1997?

Update: The Thai SET opens today's session with a big 3% decline!

Vietnam Raises Minimum wages by 15%, Bank of Indonesia Hikes Interest Rates, Thailand’s Parallel Universe

The Vietnamese government mandated a 15% increase in minimum wages a few days back.

Speaking in behalf of Japanese companies whom has expressed concerns over rising input costs, the Nikkei Asia reports

Prime Minister Nguyen Tan Dung approved the wage adjustment proposals made by the National Wage Council without substantial changes. The new minimum wages will become effective on Jan. 1, 2015.

The decision means that Vietnam's minimum pay will post a 17-fold jump from 15 years ago, in keeping with the rapid economic growth during the period. The upward trend of wages is likely to continue as workers stage strikes in demand of higher wages.

Increased labor costs could have serious repercussions for Japanese companies operating in the country.

The minimum monthly salary in Region 1, which includes urban areas like Hanoi and Ho Chi Minh City, will rise 14.8% from 2014 to 3.1 million dong ($145) in 2015. While Region 2, mostly made up of suburban areas, will rise 14.6% to 2.75 million dong. Provincial Region 3 and the rural Region 4 will increase by 14.3% and 13.2%, respectively, to 2.4 million dong and 2.15 million dong.

The increases for Region 3 and 4 will be 20,000-50,000 dong less than the National Wage Council's August proposals for those regions, which called for pay increases of over 15%. The differences indicate the government's acknowledgment of mounting concerns by foreign companies over labor costs.

Why is this significant? Because simply stated, government’s inflation statistics (from tradingeconomics.com) and reality doesn’t match. There won’t be amplified political pressures for wage hikes if not for significant cost of living increases!

This report from a domestic news outfit, Thanhniennews.com reveals of the implied discrepancy (bold mine)

even that salary only covers 69-77 percent of a Vietnamese person's basic living costs, according to the survey, which polled 1,500 workers in 12 cities and provinces during the first half of this year.

Up to 13 percent of workers said their salaries do not cover their basic living costs, 25 percent said they had to spend carefully and 50 percent said their salary only affords the most basic standard of living.

Vietnam's economy, which recorded growth of 5.42 percent last year, is expected to expand 5.8 percent in 2014, in line with a government target. The Southeast Asian country is expected to keep annual inflation at a rate below 5 percent, or about 2 percentage points below a government target.

Why shouldn’t there be increased inflationary pressures in Vietnam's economy?

Vietnam’s government has been on a spending binge as revealed by the huge fiscal deficits (as of 2013). How are these being funded? External borrowing plays a big role in the financing. External debt has been ballooning in nominal terms and as well seen from debt-gdp ratio. 

So borrowing externally and I would suppose also internally has caused a surge in M2.

Balance of trade has been negative of late even as current account remains positive-–most likely as a result of external borrowings. 

So the Vietnamese (both private and public) has been spending more than they have been producing. Spending which has been financed largely by debt.

Naturally, this entails strains on the domestic currency. The USD-Vietnamese dong has been soaring. The USD-VND now at July milestone highs. All these points to bigger inflation pressures than what has been revealed by government statistics.

Nonetheless like almost elsewhere, Vietnam’s stocks has been at a 5 year high. It has only been in August where the Ho Chi Minh Index has seen some selling pressures in the face of a severely weakening dong.

What Vietnam’s macro fundamentals reveal has not only been inaccurate statistics but importantly structural fragilities making her economy vulnerable to shocks either internally or externally triggered. 

Yes the Vietnamese government have recently posted record foreign exchange reserves but this have been funded by external borrowings.

And ASEAN’s economic troubles keep mounting.

Indonesia has raised interest rates for the sixth time since June 2013 as the government reduced oil subsidies and allowed for a 30% hike in fuel prices.

From Reuters: 

Indonesia's central bank, moving quickly to contain inflation after the government raised fuel prices more than 30 percent, hiked its benchmark interest rate by 25 basis points to 7.75 percent on Tuesday.

In his first major economic policy decision, President Joko Widodo on Monday night raised subsidised gasoline and diesel prices by more than 30 percent to help fund his reform agenda and tackle the country's budget and current account deficits.

What has adjusting interest rates (a monetary tool) have to do with fuel price increases (real economy)--the latter of which should signify a temporary boost? This relationship has hardly been questioned by the consensus or by media or explained by 'experts'.

Well, the answer can be shown above.  

The Indonesian government has likely been using fuel prices as a pretext to curb runaway private sector credit! 

Indonesia's political economy used to be the poster child for the ASEAN boom which had been blessed by upgrades by credit rating agencies.

And true enough, credit upgrades got Indonesians to rack up more credit. Yes this applies even to the government where fiscal deficits has widened, which as usual has been financed by a surge in external debt and domestic monetary inflation.

At the end of the day,  Indonesia's credit bubble has inflated both a property and a (signs of deflating?) stock market bubble as seen by the JCI Index (left window) even as the rupiah has been significantly weakening (see right window, now the USD-IDR approaches January 2014 highs). 

Remember Indonesia has been labeled one of Emerging market's fragile five and currently has been marked as one of the most expensive bourses in the world by the Telegraph!

Finally, Thailand just posted a .6% growth in the 3Q.  

From the Strait Times: Thailand's planning agency on Monday trimmed its economic growth forecast for this year to 1.0 per cent from 1.5-2.0 per cent seen in August, citing weak exports. In 2013, growth was 2.9 per cent. The Thai economy grew a much less-than-expected 0.6 per cent in July-September quarter from the same period a year ago, and expanded 1.1 per cent from the previous three months, the National Economic and Social Development Board, which compiles gross domestic product (GDP) data, said earlier on Monday.

I recently questioned the optimism by Thai authorities who predicted a 1.5% growth for 2014: 2Q GDP of a  marginal +.4 growth in GDP spared the Thai economy from a technical recession (chart from tradingeconomics.com) Given the stagnant 1H, it would take about 3% growth for the 2H in order to meet the BoT’s 1.5% target this year. Yet the BoT admits that debt burdened consumers have been marginally improving.

So the Thai economy continues to struggle. Aside from the politics, onerous debt burdens should continue to weigh on the economy.

Yet does the Thai government know that produce 1% GDP for 2014 would require 2.5% growth in 4Q? Have they been dreaming?

Don’t worry be happy, in today's world illusions prevail. Bad economic news has become good news for stocks. The Thai experience of near recession growth or stagnation comes with near milestone high stocks!! 

Parallel universes have now been the fad. As one may notice, regardless of fundamentals, stocks have been foreordained to rise forever!!!