Asia-Pacific

India

Domestic needs limit prospects for vaccine exports

India is planning to resume exporting COVID-19 vaccines from October, which should help to further boost the trade position. But with vaccination coverage still low, the domestic vaccine rollout will continue to take priority. Vaccine shipments from India therefore won’t be enough to shift the needle for rollouts in other poor EMs.

24 September 2021

We think China’s equities will continue to struggle

Even if the current concerns around Evergrande abate, we think China’s stock market will continue to underperform many of those elsewhere over the next couple of years.

Drop-In: Evergrande – What are the risks to China and the world? Chief Asia Economist Mark Williams and Senior China Economist Julian Evans-Pritchard will be joined by Senior Markets Economist Oliver Jones to take your questions about the Evergrande situation. They’ll be covering the implications of collapse for China’s financial system and growth outlook, and assessing the global markets fallout. Register here for the 0900 BST/1600 HKT session on Thursday, 23rd September.

22 September 2021

Global index inclusion would marginally boost bonds

Speculation is building that India will be included in major global bond indices over the next year or so. If that happens, it would highlight the local bond market’s growing maturity and be cast as a coup by the government, for which bond index inclusion has long been a stated policy aim. With vast amounts of assets tracking global indices, this would leave scope for a rise in portfolio inflows. To be clear, with India’s weighting in any global index likely to be small and increased only gradually, the impact is more likely to be marginal than transformational. Nevertheless, bond index inclusion would still bolster our view that, supported by a commitment from the RBI to keep policy very accommodative, Indian bond yields should only rise very slightly over the next 18 months even in an environment of higher US Treasury yields.   Drop-In: Evergrande – What are the risks to China and the world? Chief Asia Economist Mark Williams and Senior China Economist Julian Evans-Pritchard will be joined by Senior Markets Economist Oliver Jones to take your questions about the Evergrande situation. They’ll be covering the implications of collapse for China’s financial system and growth outlook, and assessing the global markets fallout. Register here for the 0900 BST/1600 HKT session on Thursday, 23rd September.

22 September 2021
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Debt risks come back to the fore

Problems at Evergrande in China have dominated the headlines recently, but (sovereign) debt risks are brewing in other EMs too. Concerns about higher government spending and rising public debt levels are building in parts of Latin America. Meanwhile, sovereign dollar bond spreads have surged in a handful of frontier markets including Sri Lanka, Tunisia and Ethiopia. These economies all face the worrying combination of large external foreign-currency debt burdens, low FX reserves and weakening currencies. We are most worried about Sri Lanka. While the country will probably muddle through this year, it will face a crunch point in early 2022 when large bond repayments are due. A default is now looking the most likely option.

A dive into the National Infrastructure Pipeline

The Indian government’s aim to significantly ramp up infrastructure investment through its flagship National Infrastructure Pipeline (NIP) has suffered less disruption than might have been expected during the pandemic. That is a positive for long-term growth prospects. But significant headwinds – including the weakness of the banking sector and land acquisition constraints – will prevent the NIP from having a transformational impact on the Indian economy.

RBNZ set to tighten in October, RBA in early-2023

The strong rise in New Zealand’s GDP in Q2 nearly returned output to its pre-virus path despite the headwinds from low net migration and the slump in foreign tourism. So while GDP plunged in Q3, we still think the RBNZ will be comfortable raising rates in October. Meanwhile, the lockdowns in Australia will probably cause the unemployment rate to rise in the months ahead. But we doubt the rate will surge as high as the RBA expects. Our bullish view on the labour market underpins our non-consensus forecast that the RBA will lift rates in early 2023.

Telecoms lifeline, autos constraints, bank liquidity

India's struggling telecoms firms were thrown a lifeline this week after parliament approved a four-year moratorium on dues owed to the government. One potential consequence is that telecoms firms are required to raise prices in order to lift revenues, which would boost inflation. Meanwhile, global semiconductor shortages have been weighing on India's auto sector, which will prove a headwind to the broader industrial recovery.

Emerging Markets Capital Flows Monitor

Net capital outflows from emerging markets appear to have eased over the past month, helped by a pickup in portfolio flows into South East Asia and India. Looking ahead, even if rising US Treasury yields were to trigger renewed outflows in the coming months, vulnerabilities in most major EMs look limited.

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