ASEAN-4 Remains Tied to Global Markets

CEIC Macro Watch Global #26, November 29, 2013 The relative dependence of the equity markets in the ASEAN-4 countries (comprising Indonesia, Malaysia, the Philippines and Thailand) on global factors arguably puts to question the popular idea (prior to 2007) that the emerging markets have become “decoupled” with the markets of their developed counterparts, especially as the domestic markets of these emerging countries are unable to drive or sustain growth given the slowdown in developed markets. This is especially true with the equity markets in the ASEAN-4 given their traditional reliance on growth from exports and foreign investments. During 2011, rattled by the heightened risk of a global recession, their equity markets were further weighed down by the perceived inability of the European governments to decisively manage the fallouts from their debt crises, sparking fears of potential contagion. At the same time, the downgrade of US sovereign debt by Standard and Poor’s – combined with the threat of a downgrade by Moody’s – added further uncertainties in the equities market globally. This culminated in a decline in the benchmark indices in the ASEAN-4 countries, beginning August 2011. In particular, the Stock Exchange of Thailand’s benchmark index (the SET Index), fell from 1,144.14 points at the beginning of August 2011 (where 30 April 1975=100), to 916.21 points by the end of September 2011. These increased uncertainties were also reflected in the meteoric rise in gold prices following hints of increased market volatility. While gold prices in Thailand had been persistently rising prior to August 2011, increased uncertainties sent them skyrocketing from THB 22,700/baht or USD 763.43/baht (where 1 baht ≈ 15.2 grams; a measure of gold weight distinct from the currency name) at the beginning of August 2011, to THB 24,100/baht or USD 773.24/baht by the end of September 2011. Hopes of a speedy recovery in the equity indices were hampered by weak macroeconomic data from Europe and the US, and broad disagreements over the policy measures required to tackle the debt situation. Notable among the ASEAN-4 was the relatively weak growth in the Indonesian equity market throughout the 2010-2013 period. While the benchmark Jakarta Stock Exchange composite index similarly declined from 4,193.44 points (based on 10 August 1982=100) at the beginning of August 2011, to 3,549.03 points by the end of September 2011, the index did not significantly improve relative to its regional peers even as the global economy showed periodic signs of recovery – including the liquidity injections by the US Federal Reserve and the Bank of Japan, among other initiatives. Given the widespread reliance on foreign capital and export-oriented growth, the increasingly interconnected financial markets, and the nature of the global production and distribution chain, events in Europe and the US are likely to continue exerting significant influence in the ASEAN-4 equity markets. By Ian Lim in Malaysia - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
29th November 2013 ASEAN-4 Remains Tied to Global Markets