Asian Emerging Markets Better Off Than Global Peers, Singapore's Menon Says

(Bloomberg) -- Emerging markets in Asia are in a stronger position than peers elsewhere because of solid economic growth prospects, low inflation and strong reserve buffers, said Singapore’s central bank chief.

While the region’s developing economies won’t be spared from the market turmoil that’s hit countries from Argentina to Turkey, once the “adjustment has run its course” investors will be better able to discern that countries like Indonesia have taken the right steps in response, Ravi Menon, managing director of the Monetary Authority of Singapore, said on a panel at a Milken Institute conference on Thursday.

Asian Emerging Markets Better Off Than Global Peers, Singapore's Menon Says

“Asian emerging markets are in a better place than emerging markets elsewhere,” Menon said. “It goes back to fundamentals. Growth is good, inflation is low, buffers are strong.”

Indonesia has been one of the hardest hit in Asia from the global market rout, with deficits on both its current account and budget making the economy reliant on foreign investment and vulnerable to outflows. The currency has slumped more than 8 percent against the dollar this year to its lowest level since the Asian financial crisis two decades ago.

Indonesia’s central bank has raised interest rates four times since May to boost the rupiah, while the government is curbing imports to help narrow the trade gap.

Trade War

Menon said Asia’s underlying growth story remains intact despite global risks from trade wars and rising interest rates. A growing middle class, urbanization and the integration of markets to allow for more trade will continue to underpin the region’s growth prospects, he said.

If the U.S. follows through with additional tariffs on China, that would cause a 0.5 percentage point loss to GDP growth for both countries, Menon said.

“That will sweep down the supply chains across Asia and shave off growth in many of these small open economies in Asia,” he said. “Things could get a lot worse from this point on, but that remains a tail risk for now.”

Menon said the correct response to a unilateral hike in tariffs was not to retaliate, but to step up trade with other countries.

“If retaliation goes on in a series of tit-for-tat moves, the impact will be bigger,” he said. “So what I’m suggesting is you can actually stop it by not retaliating.”

©2018 Bloomberg L.P.