Nazir: Volatility not unexpected

Nazir: Volatility not unexpected
Business & Markets 2013
Written by Anna Taing of theedgemalaysia.com
Friday, 23 August 2013 10:18

SINGAPORE: The sharp fall in Asia's equity markets and currencies is not unexpected, said CIMB Group CEO Datuk Seri Nazir Razak yesterday.

"We were invited to the [liquidity] party, we all went and now it is coming to an end. Some people would have drunk too much, and there will be a hangover," he told a news conference on the eve of the inaugural Network Asean Forum (NAF) here.

Nazir was responding to questions from the media on the recent volatility in the region's financial markets and worries that Asia could be revisited by a financial crisis akin to that of 1997.

The NAF brings together business leaders from Asean to brainstorm solutions to the problems obstructing the creation of the Asean Economic Community.

Nazir opined that Asean has learnt the lessons of 1997. "This group of countries was brought to its knees in 1997/98. We still remember the lessons ... How many Asean companies today have currency mismatches in their books? Not many," he said.

"There will be volatility and certain segments will have difficulty," he said, but overall, he believes the region's growth momentum and fundamentals are in place.

Asia has been flooded by a deluge of liquidity since the developed world, particularly the US, embarked on a series of quantitative easing (QE) programmes to put their economies back on the growth path.

Cheap money flowed into emerging markets to pursue higher returns on investments, creating huge credit bubbles in many of the region's economies.

The "party" was seen coming to an end after the US Federal Reserve hinted as early as May this year that the QE programmes could be tapered off as early as 2014. Investors, in anticipation of higher interest rates in the US, have been exiting funds from the emerging markets.

As a result, equity prices plunged, currencies fell and bond yields rose.

The negative sentiment was also due to the deteriorating economic fundamentals in Asia — a slowing China and the widening current account deficits in Indonesia and India. Indonesia for example, saw its current account deficit widening to 4.4% of GDP in the second quarter (2Q) of this year,from 2.6% in the previous period. The rupiah has depreciated by some 10% since the beginning of the year.

The high growth in Asia, a growth axis for the global economy in recent years, is also seen coming to an end.

Thailand is already in technical recession. Its GDP shrank 0.3% in the 2Q of this year, after contracting 1.7% in the first three months.



This article first appeared in The Edge Financial Daily, on August 23, 2013.