Asia-Pac financial market uncertainty could derail recovery

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PETALING JAYA: The volatility in financial markets could still derail the recovery in Asia-Pacific in spite of the region’s resilience so far to global economic weakness, according to Standard & Poor’s (S&P). Its economist Vincent Conti said in a report that a key result of its analysis was that changes in global financial risk appetite mattered more to the regional investment outcomes than changes in real external demand for most of Asia-Pacific. “Our results suggest that despite the expected improvement in global growth prospects, the current bout of global risk aversion may temper investment growth in Asia-Pacific,” he said. The report also found that Southeast Asian economies’ large young labour force, rising incomes and renewed push to further private and public investment allowed these economies to grow at reasonable rates despite global economic shocks.

“In contrast, growth in the more export-dependent, newly industrialised economies of South Korea, Taiwan, Hong Kong and Singapore tends to suffer when global economic activity slows.

“This is given the dominance of high value-added consumer and capital goods in the economies’ production base, which are in highest demand in the advanced economies,” the global ratings agency said in a statement.

“It is important to distinguish real sector factors from global risk sentiment because financing needs, foreign holdings of local securities, and depth of financial markets vary across Asia-Pacific,” Conti said.

“Sudden shifts in global investor sentiment could dramatically influence funding costs through capital flows, possibly affecting the real economy. Moreover, increases in global risk aversion do not necessarily occur in periods of weak global growth.”