South-East Asia: Stability returns
Source: REUTERS/Vivek Prakash
A performer from the Jiangxi Acrobatic Troupe balances a set of glasses and a vase on her nose during a Chinese New Year show in Singapore.
South-East Asia’s capital markets were sent reeling in the middle of 2013, when the first hints at an end to the easy-money policies of the US savaged the world’s emerging markets. That even the weakest economies managed to stave off a full-blown crisis, however, is an important source of comfort.
Amid the volatility of last summer, the region found itself at the forefront of a global flight to safety. Indonesia, in particular, bore the brunt of the portfolio rebalancing as investors cut their exposure to countries with current account deficits.
Currencies wobbled and equity indices tumbled, but comparisons with previous emerging-market crashes ended there. The dreaded balance-of-payments crisis failed to materialise, and local markets have since found their feet again.
Since the start of 2014, equity indices in the Philippines and Indonesia are each up 10%, while the rupiah has gained 6.4% against the US dollar.
While the events of last summer were a warning of the risks global portfolio flows posed, the subsequent recovery is good news for Asia. It shows that the local financial systems across South-East Asia are far deeper today than they were at the onset of the Asian financial crisis in 1998, and have been able to absorb the shock of a major market correction relatively well.
That bodes well for deal-flow in the region’s capital markets. Investors are regaining their confidence, and financings are back on the cards. Bankers should be dusting off last year’s mandate letters, and companies getting their accounts in order to take advantage of market opportunities as they appear.
It is just as well, after a slow start to 2014 across the region’s various funding markets. Bond sales are down on the boom of early 2013, both in local currencies and in US dollars, while syndicated lending has stalled and IPOs have been shelved.
The challenge for South-East Asia, however, is to remain relevant as the larger North Asian markets come back online. With fears of a slowdown in China on the backburner, and amid a concerted effort to expand overseas, Chinese companies are again leading the way this year in both the debt and equity capital markets.
South-East Asian issuers will need to navigate a treacherous political climate, with elections looming in Indonesia and unrest lingering in Thailand, but waiting too long to revive deals will also be a mistake.
Recent years have seen advisers and investors devote more resources to South-East Asian offices as the regional balance shifts further south. It will be a shame if last year’s corrections mean those positive moves are going to waste.
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