International investors looking for yield have been pumping money into ASEAN stock markets, with Vietnamese stocks rising over 10 percent in the twelve months leading to March 2013, according to a new ICAEW report Economic Insight.
According to the report that undertakes a quarterly review of South East Asian economies, with a focus on the five largest countries; Indonesia, Malaysia, the Philippines, Singapore and Thailand, current rises in stock prices may be unsustainable. ICAEW Economic Advisor and Cebr’s Head of Macroeconomics, Mr Charles Davis, said: “Stagnation in industrialised nations means investors are turning to emerging economies in search of higher yield. ASEAN stock markets have ridden this wave of capital, sending stock prices skywards. But the growth rates we are seeing in some countries – 20 percent in Indonesia and 34 percent in the Philippines – are not sustainable, and could hint of an emerging bubble.”
Strong market investment is also being matched by firms and households taking on higher levels credit. The ratio of debt-to-income had been declining until 2010, but a positive outlook has led to the private sector increasing its debt exposure, which is now in the region of 120-130 percent for Singapore, Thailand and Malaysia.
Mr Mark Billington, Regional Director, ICAEW South East Asia, said: “Debt levels in the region remain manageable for as long as the projected positive growth story remains. For the moment, debt levels are around half of what they were at the peak of the Asian crisis. This is fine for now, but would be a cause of concern if credit growth continues to outpace nominal GDP growth at the same rates we see today.”
“Growth outlook for both Vietnam and ASEAN as a whole remains healthy. However careful judgement will be needed to ensure that credit growth and capital inflows are used to lay the foundation for future prosperity and not fuel a bubble.”
The report also shows the global slowdown is catching up with emerging markets. China has eased off its super-charged growth, Brazil struggles to control inflation and to raise industrial output, and oil & gas fuelled Russia appears to lack the energy for future growth. Low returns on government debt are pushing capital to emerging market assets. Combined with growth in credit, inflation and bubbles may form, though currently, regional markets look healthy as governments keep a close watch on housing and equity markets. Any unorthodox monetary policy could come to haunt investors.