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Asian economies hit by fears the US may scale back its economic stimulus

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By Martin Conboy.

The brisk development in emerging Asian markets has been under pinning the strength of the global economy for the past decade and just when the US and major European economies are starting to stabilize having worked their way out of recession, there are now emerging difficulties in a number Asian markets that are causing concern.

Many of these countries are serious players in the BPO space.

Asia’s emerging markets – once a favourite with global investors – have been falling out favour. It’s a variant on the same old story: investors loved these economies not wisely but too well, and have now turned on the objects of their former affection. It’s now becoming clear that the torrent of money washing into emerging markets — which briefly drove their currencies up dramatically, has now been completely reversed.

Countries such as India and Indonesia have been hurt by a slowdown in global growth as well as their widening current account deficits. This decline in global growth coupled with the speculation of the US central bank scaling back its stimulus programmes Quantitative Easing (QE) which the US Fed first hinted at in June, has seen investors withdraw money from these emerging economies.

Thailand’s SET was down 1.9% and the Philippines Stock Exchange down by more than 6%. Malaysia’s Bursa declined 1.8%. India’s rupee hit a new all-time low, while the Indonesia rupiah fell to its lowest level since 2009.

Against the US dollar, the Indonesian rupiah has fallen 18%, the Indian rupee nearly 16%, and the Philippine peso and Thai baht both 10%, since last May.

The biggest threat right now is that monetary policy in emerging markets will overreact — and their central banks will raise interest rates sharply in an attempt to prop up their currencies. It will be interesting to see how that pans out.

QE is an unconventional monetary policy used by central banks to stimulate the national economy when standard monetary policy has become ineffective. This is what is currently happening in the USA. If the emerging economies start printing money then we are in for a very wild ride indeed.

If the currencies stay at current levels that will good for the buy side of outsourcing as the sell side markets just became a lot cheaper. The challenge is that when the existing contracts were struck, the wild volatility in the currencies may not have been taken into account and someone is taking a serious haircut.

China is still slowing.

I had a conversation with a guy this past week who was employed by a company who looks to secure clients for large industrial parks in China.  There are nearly 2,000 new industrial parks in China all looking to secure big name clients especially BPO companies, as they are big employers. He got laid off, as the company was unable to secure any tenants.

Sooner or later the whole idea of ‘Build it and they will come’ approach in China is going to come crashing down around their ears. It’s all very well to have brand new buildings and infrastructure, but without tenants it’s a poor utilisation of capital.

It’s not easy to reposition ones capital if there is no market for real estate outside of the major big city markets. There is a serious real estate bubble in China that may burst very soon.   Having said that, though, the scale of the urbanisation of Chinese society will underpin growth for decades ahead, so long as businesses can ride out periodic rough patches.

Meanwhile, a decline in global demand is damaging export-dependent economies such as Thailand and the Philippines. The BPO market is after all export revenue for these countries, as they are selling the skills and labour of their work forces via the internet and in the case of the Philippines BPO is a major contributor to GDP.
August 27, 2013
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