Emerging markets vulnerable, but Australian partners show stronger growth position


Efic’s September edition of World Risk Developments reviews emerging markets and the latest economic and geopolitical developments across key Asian economies.

Markets are on edge as investors fret over the course of monetary policy in advanced economies, with uncertainty spilling into financial markets. “We still don’t know if the Bank of Japan or European Central Bank will increase stimulus. It’s also expected that the Fed will raise rates some time over the next six months,” says Efic Senior Economist Cassandra Winzenried.

But according to Efic’s emerging markets (EM) scorecard, some EM economies appear in a stronger position than others to handle a potential sell-off. “Australia’s major EM trading partners, China, India and the ASEAN 5, appear relatively well placed to handle a sell-off. This is due to a stronger growth outlook, proactive policymakers and solid external debt position,” says Winzenried.

Meanwhile, China combats slowing economic growth by doubling the number of ‘free trade zones’ (FTZs). “These new FTZs will serve as a test bed for financial and institutional reform. We’ve seen successive rounds of deregulation, for example, in July foreign investment restrictions were relaxed in the existing FTZs, allowing easier access to sectors like steelmaking, transportation, outbound tourism, and agriculture,” explains Winzenried.

The new FTZ regions are expected to tap their unique geographical and industrial advantages to pilot wider reforms and improve regional distribution of income. Winzenried says, “we have Henan in Central China, inland Hubei, Chongqing, Sichuan, Shanxi, and coastal Zhejiang. These new FTZs further the broader aim of making Central and Western China the ‘new frontier’ of foreign investment.”

Other topics canvassed in this month’s edition include:

  • Shipping—Hanjin bankruptcy threatens global supply chains
  • Myanmar—US to drop remaining sanctions
  • Philippines—investors watch Duterte carefully

Read the full September edition of Efic’s World Risk Developments here.