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So got asked about EM Asia resilience & impact of risk-off on EM Asia. This is not 2018 - the sell-off was very much a hawkish Fed story & trade-war was more later in Q4. CA deficit guys like Indo, Phil, India got hit hard as they needed USD funding. But this time is different...
Why is it different? The Fed just cut & likely to cut more (so not because of tighter USD liquidity). The cause of the sell-off is WORRIES ABOUT GLOBAL GROWTH (China using FX & fiscal to shelter the current account, meaning less imports from rest of the world so traders suffer)..
The sequence of events of the recent sell-off goes like this: a) Global data totally worrying; b)China data shows softening of demand - imports -4% & exports 0%; c)Asia traders like Korea just doing terrible (double digits decline of exports. AND THEN ESCALATION (Tweet meets fix)
When Trump Tweet meets Yuan Fix, it means China is going to even import less from the world (-4% ytd so far in USD) & that is totally worrying for the world b/c man we got limited creative juice right now & can't find places to export.
So that's the issue. We worry about demand.
So that's the issue. We worry about demand.
Obviously when we worry about global demand, guys that are superstars of exporting like South Korea are not going to do well. Why? B/c that is what they do - exports, esp to China. If China shelters the CA w/ a weaker FX, then Korea won't do well. But the Philippines is no Korea.
The Philippines barely exports. That was really really bad when the world was growing & you need to be part of that ever growing pie. But the world is looking doomy & gloomy so the Philippines is looking OK. Actually, not too bad. Actually, pretty good to hide. So much so that...
Instead of worrying about financial stability, the governor today said, "We will cut rates by 50bps." So that is not the tone of a governor scared of financial stability & assessing whether there is enough reserves to intervene to help the peso, right? Nope. This time is diff...
Remember how one day I did this long rant about DOMESTIC DEMAND IS KING. Well, did that for a reason. Because this time it is different. This time, the fragile EM Asia isn't as fragile but rather a decent place to hide b/c we got cheap liquidity & demand!
