Asia is enjoying better growth so far this year versus 2016. Of the 11 countries we track in Figure 1, seven registered faster growth in 2017 (based either on Q1 or H1 GDP data). China leads the pack, growing 6.9% in H1 – we now think China may register faster growth in 2017 than 2016; this would be the first time that annual growth has not slowed since 2010. Of the three economies that underperformed versus 2016, India was due to demonetisation, the Philippines was slower versus a high base and Korea’s Q2-2016 growth was boosted by budget front-loading.   

The region is benefiting from a pick-up in external demand. All the economies we track above are enjoying faster export growth. As a whole (excluding China, Indonesia and Vietnam), exports rose 13% y/y in 5M-2017. A caveat is that 32% of the increase went to China. This is reflected in the export broadness index above, which shows a relatively narrow export destination profile for the region so far this year. We expect Asia’s export performance to ease in H2 on the back of growth moderation in China and less favourable price base effects.  

Comparatively, domestic economic activity appears more divergent across the region. Credit growth remains soft in several economies, reflecting still-cautious domestic sentiment. Government-led infrastructure in places such as Indonesia and Thailand will be needed to mitigate soft private investment. 

 

Eoin Treacy's view

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There are two ways of looking at the impressive performance of Asia’s stock markets. The first is that it reflects the region’s continued economic outperformance driven by favourable demographics and leverage to global economic expansion. The second is that they do not exist in a bubble and both US interest rates and the Wall Street Leash Effect cannot be ignored. H

Generally speaking, these points do not stop Asian markets from pulling back but does ensure they bounce more impressively when selling pressure abates. The 27th was a big day for global earnings and while stock markets managed to close relatively unchanged, that belied an uptick in single stock volatility. That resulted in some knock-on selling pressure today across Asia. 

Taiwan and South Korea, which have benefitted from the outperformance of technology are both susceptible to some consolidation of recent impressive gains. 

India’s Nifty Index is testing the psychological 10,000 level and has so far been immune to selling pressure. A reaction of more than 250 points would be required to begin to question the rhythm of the medium-term advance.