Stagflation Grips Asian Economies

By Guneet Singh Sahni - Asian Markets Analyst

Asian markets were mixed last week on falling crude and a strengthening dollar.

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Asian markets witnessed mixed results last week on the back of concerns for decelerating economic growth. Asian economies have also been hit by falling exports to the U.S. and softening domestic demand. Consequently, oil prices cooled down to a three-month low of $115 per barrel on fear of slowing demand from Asian economies. The dollar catalyst was also a factor in oil's demise, as it gained against most of the Asian currencies.

Japan's Nikkei closed flat for the week on expectations that Japanese industry will be able to withstand the slowdown; this as Toyota Motors (NYSE:TM) maintained its growth forecast. China's CSI 300 tumbled the most (declining 8.8%) in six weeks as the government abstained from announcing new measures to boost the equities market ahead of the Olympic Games. The CSI 300 Index has lost 51% from this year's high, as rising prices and slow growth hurt earnings. Taiwan's primary index, the Taiwan Weighted, and India's BSE Sensex were smart outperformers, gaining more than 3% for the week.

The Bank of Korea unexpectedly raised its benchmark interest rate to an eight-year high of 5.25%, saying the fastest inflation in a decade poses a greater threat than slowing economic growth. Indonesia's central bank also raised its policy rate by a quarter point, to 9%, which was in line with expectations. This came after Consumer Prices in Indonesia jumped 11.9% in July. Taiwan's Consumer Price Index surged to a 14-year high of 5.92%, after the government ended caps on power prices and storms led to an increase in food costs.

This Week's Demand Driver

This week's gross domestic product data from Japan is expected to show that the economy contracted in the second quarter, validating fears of a recession. Other Asian economies will be coming out with their growth and inflation figures, which will set out the priorities for the central banks to choose between growth and inflation.

Monday: Malaysia's Industrial Production data for the month of June will be announced at 12:00 PM local time. Markets expect Industrial Production to moderate due to slowing exports. Singapore's second quarter GDP data will also be released, and it is expected to show further slowing.

Tuesday: China will come out with its inflation figures for the month of July at 10:00 AM local time. China has been witnessing excessive capital flows, on account of its appreciating yuan, thereby increasing inflation. The Indian market will be closely watching for its Industrial Production data, as it should guide the future direction of one of the last month's best performing Asian markets.

Wednesday: The Cabinet Office of Japan will release its second quarter GDP report at 8:50 a.m. in Tokyo. This will be a popular event, after the Japanese government acknowledged earlier this week that the economy may be in recession. China's retail sales data will be released at 10:00 AM local time. Korea's unemployment rate for the month of July will be released at 12:30 PM local time. The Securities & Exchange Board of India (SEBI) will hold a board meeting on the 13th of August to review FII regulations. The board may revisit the norms relating to participatory notes and securities lending and borrowing mechanisms.

Thursday: China's Industrial Production data will be released at 10:00 AM local time. Indonesia will come out with second quarter GDP figures, and Indian WPI inflation figures will be announced at 5:00 PM local time.

Friday: Hong Kong's second quarter GDP growth rate will be announced at 4:15 PM local time. Singapore retail sales data will provide an outlook on consumer demand. The Indian market is closed on behalf of India's Independence day.

For more detail on individual markets Japan, China and India, see:

• Japan Market Strategy - Slipping Into Recession
  
• China Market Strategy - Chinese Stocks Collapse
  
• Indian Market Strategy - India Outperforms
  

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