Market Volatility and Economic Growth: How Sustainable?
Investment Boom and Bust Cycles: The same old story!
On the backdrop of a robust economic growth driven by China and India's powerful driving engine, Asia seems to have been the perfect ground boasting competitive co-integration yet broader economic reforms that is underway led to the phase of miracle economies in the South Asian region. There have been an increased participation of foreign capitals as ‘private equity' as well as from hedge funds who have brought in huge inflows into these markets. According to a recent IMF estimation, global growth have been forecasted around 4.8%-- from a 5.2% forecats earlier, and now down to 4.1% due to the ensuing slowdown in the US economy and the problems in the US housing markets.
The euro zone, with its 13 member nations are predicted to expand by 2.1% while the US could expand by only 1.9% instead of 2.8%. Where else, the Asian region is expected to grow by 6-6.5% on average taken for major Asian economies , i.e., China, India, Hong Kong, Taiwan, Korea, Thailand, Malaysia and Singapore.
The financial market turmoil has left the markets highly volatile and somewhat unstable. With the ‘Greenbacks'-(US $), further depreciating against the major currencies, particularly the euro, a rising euro and the Yuan pressure has caused a substantial widening of the US current account deficit to-6% of its GDP, above a 4% comfort zone.
Much of the causes of US current account deficit have been blamed on China due to its undervalued Yuan, which the country enjoy as an export incentive over other countries. China has recently increased its forex reserve to well above US $ 1 trillion, which resulted in trade
shortfall for the US.
Is the Dollar still dominating?
The US dollar's dominant role as an international reserve currency seems to have been heading for a flack, as euro has recently emerged as a currency of choice among the forex markets due to its strong holding against the $. The Yuan (renminbi), has also gained critical importance due to its sustained pressure on the $ markets, the chief cause for calling China to revaluate its currency.
The euro appreciation, on the other hand has increased concern for the euro zone exporters, as exports have become costly relative to China, which means cheaper imports for the Chinese goods to the European markets and vice-versa. It is to be seen whether cheaper imports could contain the inflationary pressures in Europe, as well as a low interest rate scenario be possible in the near future. But the Yuan seems to have cast its spell on the euro zone besides the US, as such; one is likely to see if there could be any substantial trade deficits to follow from these regions too. Recent account points to this trade deficit as being 25% amounting to US $88 billion for the euro zone.
G-7 Summit and the Weforum 2008 On Global Economics and the Financial Markets
The G-7 Summit and the Weforum 2007 concentrated mainly on some of the problems and policy changes in the international capital markets. Among those were:
Soaring value of the euro
How to contain financial market turmoil
China's revaluation of its Yuan (Renminbe)
China's mounting trade surpluses
Yen appreciation and containing Japan's deflationary phase
Risks in the international financial markets
Bank and financial institutions exposures to the current sub prime mortgage market collapse
How to contain further US $ depreciation
International Foreign exchange market stabilityCrude oil price shock and its global impact
How Much Strong is the US Dollar?
One would wonder about the US strong dollar policy adopted by the federal treasury behind the dollar's debacle in the global forex markets, as a falling dollar may not sound favorable to the monetary policy makers. These factors, combined with undervalued Yuan have already disrupted the global exchange rate management as some countries are finding it difficult to remain pegged to US dollar. We have noticed some major currencies appreciate against the ($) dollar, such as Yen (¥), Indian Rupee, Euro (€) and the Thai Baht, by at least 7-10%, except the Chinese Yuan (renminbi) which moved only 0.75% in the past six months. One of the causes behind the falling dollar is diminishing importance of the ‘Greenback' due to shifting of investors target toward the high growth emerging markets, Asia-Pacific, where the global investors see potentially higher return on investments (RoI) compared to the US markets/assets.
Some Concern For India and South East Asia: Inflation, Market and Currency Volatility!
On the Indian perspective, though the country has been doing perfectly well in containing inflation well under 4% as well as managing capital inflows, recent rise in peak crude oil price touching $100/brl brought-in inflationary pressures within the RBI horizon. RBI's weekly statistical supplement (WSS) reported that India's forex reserve jumped from $256.7 billion till 20th October to $287 bn in January 2008 . India has also gained a fair share of the global forex turnover with around $34 billion on average turnover on daily basis —that's 0.9 % of the total share. Singapore and Hong Kong are the leaders in Asia (ex-Japan), with each about $231 and $175 billion, that's 5.8% for Singapore and 4.4% for Hong Kong respectively. This naturally shows how the strength of the Indian capital and the growing 'Forex' market is gaining continuous momentum from overseas investors and FII.
The data released by Bloomberg points out to the fact that India, along with China are absorbing foreign funds more quickly than the rest of the Asian countries. The Bloomberg report also notes that the investor activity of private equities and hedge funds have increased considerably till last year in the Asia-Pacific region due to prevailing strong Asian currencies, low volatility and less risk aversion. But the exported credit market crisis from the USA changed the scenario somewhat equally replaced by high uncertainty and volatility. Truly, the dynamicity of the Asian capital and the equity markets has increased beyond expectation with new emerging economies like Vietnam, Thailand, Malaysia and Indonesia contributing to the economic successes within this turbulent times.
Sources: Bloomberg.com, Thompson, Moneymorning, FEER, FT and Economic Times and IMF.org
On the backdrop of a robust economic growth driven by China and India's powerful driving engine, Asia seems to have been the perfect ground boasting competitive co-integration yet broader economic reforms that is underway led to the phase of miracle economies in the South Asian region. There have been an increased participation of foreign capitals as ‘private equity' as well as from hedge funds who have brought in huge inflows into these markets. According to a recent IMF estimation, global growth have been forecasted around 4.8%-- from a 5.2% forecats earlier, and now down to 4.1% due to the ensuing slowdown in the US economy and the problems in the US housing markets.
The euro zone, with its 13 member nations are predicted to expand by 2.1% while the US could expand by only 1.9% instead of 2.8%. Where else, the Asian region is expected to grow by 6-6.5% on average taken for major Asian economies , i.e., China, India, Hong Kong, Taiwan, Korea, Thailand, Malaysia and Singapore.
The financial market turmoil has left the markets highly volatile and somewhat unstable. With the ‘Greenbacks'-(US $), further depreciating against the major currencies, particularly the euro, a rising euro and the Yuan pressure has caused a substantial widening of the US current account deficit to-6% of its GDP, above a 4% comfort zone.
Much of the causes of US current account deficit have been blamed on China due to its undervalued Yuan, which the country enjoy as an export incentive over other countries. China has recently increased its forex reserve to well above US $ 1 trillion, which resulted in trade
shortfall for the US.
Is the Dollar still dominating?
The US dollar's dominant role as an international reserve currency seems to have been heading for a flack, as euro has recently emerged as a currency of choice among the forex markets due to its strong holding against the $. The Yuan (renminbi), has also gained critical importance due to its sustained pressure on the $ markets, the chief cause for calling China to revaluate its currency.
The euro appreciation, on the other hand has increased concern for the euro zone exporters, as exports have become costly relative to China, which means cheaper imports for the Chinese goods to the European markets and vice-versa. It is to be seen whether cheaper imports could contain the inflationary pressures in Europe, as well as a low interest rate scenario be possible in the near future. But the Yuan seems to have cast its spell on the euro zone besides the US, as such; one is likely to see if there could be any substantial trade deficits to follow from these regions too. Recent account points to this trade deficit as being 25% amounting to US $88 billion for the euro zone.
G-7 Summit and the Weforum 2008 On Global Economics and the Financial Markets
The G-7 Summit and the Weforum 2007 concentrated mainly on some of the problems and policy changes in the international capital markets. Among those were:
Soaring value of the euro
How to contain financial market turmoil
China's revaluation of its Yuan (Renminbe)
China's mounting trade surpluses
Yen appreciation and containing Japan's deflationary phase
Risks in the international financial markets
Bank and financial institutions exposures to the current sub prime mortgage market collapse
How to contain further US $ depreciation
International Foreign exchange market stabilityCrude oil price shock and its global impact
How Much Strong is the US Dollar?
One would wonder about the US strong dollar policy adopted by the federal treasury behind the dollar's debacle in the global forex markets, as a falling dollar may not sound favorable to the monetary policy makers. These factors, combined with undervalued Yuan have already disrupted the global exchange rate management as some countries are finding it difficult to remain pegged to US dollar. We have noticed some major currencies appreciate against the ($) dollar, such as Yen (¥), Indian Rupee, Euro (€) and the Thai Baht, by at least 7-10%, except the Chinese Yuan (renminbi) which moved only 0.75% in the past six months. One of the causes behind the falling dollar is diminishing importance of the ‘Greenback' due to shifting of investors target toward the high growth emerging markets, Asia-Pacific, where the global investors see potentially higher return on investments (RoI) compared to the US markets/assets.
Some Concern For India and South East Asia: Inflation, Market and Currency Volatility!
On the Indian perspective, though the country has been doing perfectly well in containing inflation well under 4% as well as managing capital inflows, recent rise in peak crude oil price touching $100/brl brought-in inflationary pressures within the RBI horizon. RBI's weekly statistical supplement (WSS) reported that India's forex reserve jumped from $256.7 billion till 20th October to $287 bn in January 2008 . India has also gained a fair share of the global forex turnover with around $34 billion on average turnover on daily basis —that's 0.9 % of the total share. Singapore and Hong Kong are the leaders in Asia (ex-Japan), with each about $231 and $175 billion, that's 5.8% for Singapore and 4.4% for Hong Kong respectively. This naturally shows how the strength of the Indian capital and the growing 'Forex' market is gaining continuous momentum from overseas investors and FII.
The data released by Bloomberg points out to the fact that India, along with China are absorbing foreign funds more quickly than the rest of the Asian countries. The Bloomberg report also notes that the investor activity of private equities and hedge funds have increased considerably till last year in the Asia-Pacific region due to prevailing strong Asian currencies, low volatility and less risk aversion. But the exported credit market crisis from the USA changed the scenario somewhat equally replaced by high uncertainty and volatility. Truly, the dynamicity of the Asian capital and the equity markets has increased beyond expectation with new emerging economies like Vietnam, Thailand, Malaysia and Indonesia contributing to the economic successes within this turbulent times.
Sources: Bloomberg.com, Thompson, Moneymorning, FEER, FT and Economic Times and IMF.org
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