Economic recovery in the US and Europe is threatening to derail any remaining vestige of growth in India and other Asian countries, fuelling a sell-off of emerging-market stocks and reversing a flow of money into the region.
Though it is not out of the woods yet, the US economy is showing distinct signs of improvement, be it in retail sales data, surge in home sales in July to a three-year high and drop in jobless claims to the lowest level since 2007.
Even the GDP in the world’s largest economy is expected to be revised upwards in the second half of the year.
The Eurozone, on the other hand, appears to have put the worst behind, with data showing it is out of recession. GDP in the 17-nation bloc finally crawled back into the positive territory in the quarter ended June after six months. Even economic confidence in the region is at a 15-month high, signalling a turnaround.
This, however, is bad news for the Asian economies, the envy of the developed world till not so long ago. As liquidity tightens and China’s slowdown curbs demand for commodities and goods, the region is feeling the heat.
Already, international rating agencies, brokerage houses and banks cutting India’s GDP forecast to below 5% for this fiscal – the lowest in a decade.
Indonesia and China are on the wane, too.
“The eye of the storm is directly above emerging markets now, two years after it hovered over Europe and four years after it hit the US,” said Stephen Jen, co-founder of hedge fund SLJ Macro Partners LLP in London and former head of foreign-exchange strategy at Morgan Stanley. “This could be serious for Asia.”
Almost $95 billion was poured into exchange-traded funds of American shares this year, while developing-nation ETFs saw withdrawals of $8.4 billion, according to data compiled by Bloomberg.
The emerging Asia story is crumbling and dollar is once again the king,” said Indranil Pan, chief economist at Kotak Mahindra Bank.