Asia before and after the sell-off

by: Maritza Cabezas

Asia before and after the sell-off.pdf ()

While tensions among Asian currencies have eased somewhat, the vulnerability to further capital outflows remains. Indeed, although the most affected countries, India and Indonesia, took measures to rapidly compress their current accounts, we think they will continue to experience stress given the uncertainty surrounding Syria, the Fed’s exit strategy and their individual country concerns. Both India and Indonesia will likely see further swings in foreign bond purchases and equities, the most affected investments during the recent sell-off. This means that we have not seen the end of fundamental reforms in these countries to make their current accounts more sustainable. There is a risk that these policies could come at the cost of slower GDP growth. In any case, given the strong fundamentals of most Asian countries we consider risks of a full blown currency crisis very small.