Indonesia has come a long way since former president Suharto adopted a new economic stabilisation policy in 1996. However, the country must take steps to improve infrastructure and enhance data measurement if it is to realise its economic potential.
Over the last week, China (+6.3%), Argentina (+4.8%), and Hong Kong (+1.39%) have outperformed in the EM equity space, while India (-1.5%) and Czech Republic (-0.9%) underperformed.
In the EM local currency bond space, longer date yields in Turkey (+34 bp), Indonesia (+27 bp) and Peru (+12 bp) rose the most, and fell the most in Colombia (-8 bp), Check Republic (-6 bp) and Brazil -6 bp). To put this in better context, the 10-year UST yield fell 7 bp over the past week.
Indonesia will become Asia’s next trillion-dollar economy, joining the ranks of South Korea, Japan and China. The economy is set to grow at an annual 5.4 percent from 2016 to 2020.
US–Vietnam relations have come a long way. In 1982, in his report to the Fifth Congress of the Communist Party of Vietnam (CPV), Secretary-General Le Duan claimed that US–China collusion constituted ‘a factor constantly threatening world peace, and especially seriously menacing security and stability in Asia’. Today, Vietnam considers the US to be a stabilising factor in the Asia Pacific.
Beijing has announced ambitious plans to unite countries along the historic Silk Road corridor and around the world via maritime routes through a trade alliance. However, the plan has difficult social and political problems that have led many skeptics to surmise that it may fail long before it can truly get started.
The Plan
The South Korean economy advertises its international prowess through the popularity of global brand name products from Samsung Galaxy phones to the Hyundai Sonata. Hidden behind these triumphant global achievements is a phenomenon of widening economic polarisation. The national economy once praised for achieving rapid growth with relative equality has now turned into the second most unequal economy among the OECD countries.
The US dollar has recouped much of the ground lost yesterday in response to the US retail sales report, which while softer than expected was the best in a year. Year-over-year excluding the volatile auto and gas components, retail sales is up a respectable 4.1%, and as we continue to note, funded without an increase in revolving credit.
India is not only growing faster than China, but also every other major market in the world. India is on pace to outgrow China’s 7.5 percent growth rate in 2015 and beyond.
EM assets are starting the week on a now familiar pattern: weaker currencies but stronger stock markets. The broad dollar rally is back in force, with the greenback pushing back against earlier cycle highs against many of the major currencies. This is taking a toll on EM currencies as well. Overall, we think this strong equity/weak currency trend is likely to continue for the near-term, albeit with some differentiation within EM.
China saw a 9.8 percent growth rate on average during 1978–2010 — the best in the world. China will likely surpass the US to become the world’s largest economy in purchasing power terms in 2015, if it has not already done so.
