ASEAN to show resilience vs. headwinds from Fed taper?

Despite disagreeing on how much the US Federal Reserve will cut its bond-buying stimulus this week, private sector analysts are one saying that Southeast Asia will survive the consequential volatility, the Philippines emerging relatively unscathed.

Jeff Ng, regional economist at Standard Chartered (StanChart) in Singapore, said they expect the Fed trimming $10-billion from bond purchases in September and ending the stimulus measure in the second quarter of next year.

StanChart also sees the Fed hiking record low interest rates by the third quarter of 2015.

“It is a close call, as August’s non-farm payroll reports disappointed with the trend in new jobs softening,” Ng told GMA News Online in an e-mail Monday.

Philippine Stock Exchange-listed Metropolitan Bank & Trust Co. noted the extent of the cut is hard to pin, and research head Ildemarc Bautista was quite sure US interest rates will be unchanged in the “foreseeable future.

“If they do taper, it's not going to be a contractionary policy,” Bautista said in a phone interview.

The Federal Open Market Committee will meet September 17 to 18 and is expected to announce its next steps on the $85-billion bond buying stimulus, dubbed Quantitative Easing 3 (QE3).

DBS Bank Ltd., the largest bank in Southeast Asia by assets, said in a research note Monday the Fed is likely to taper but not because of signs that the US economy is improving.

“Judging from the rhetoric, most Fed officials still seem inclined toward tapering QE3 this week,” the note read.

DBS said “this may be caused by growing costs/risks of the program,” adding that it may be too late to turn back now.

Last May 22, Fed chairman Ben Bernanke heralded an easing of stimulus measures. It sank financial markets worldwide and pummeled currencies, as investors took positions in safe-haven dollar assets on prospects of higher yield.

A U-turn now may only fuel volatility, the Singaporean bank said.

For sure, whatever the Fed's move will be, volatility will continue and most Southeast Asian economies can sail through the headwinds.

Unlikely to break ASEAN resilience?

Metrobank's Bautista said volatility will definitely follow – something that can rock the boat.

StanChart, meanwhile, sees Asia excluding Japan to remaining an outperformer in most scenarios other than a global economic crunch.

“We think that ASEAN economies will remain resilient to a Fed tapering event risk,” StanChart's Ng said, noting most will register moderately faster growth in the second half of the year compared with the first half, helped by better growth from the US and some stabilization in Europe

“We reckon that export demand is likely to improve, while external vulnerabilities are much improved compared to 1997,” Ng said, citing the Asian financial crisis.

Analysts were of the view the Philippines will stand firm through the headwinds.

“I'm reasonably hopeful that the Philippines will be relatively unscathed,” Bautista said, citing structural dollar inflows from remittances and business process outsourcing.

Domestic investments will “remain sturdy,” providing a second pillar for Philippine growth alongside household consumption, Ng noted.

In an interview Friday with reporters Friday, Bangko Sentral Assistant Governor Ma. Cyd Tuaño Amador said, investors will soon realize that the Philippines can sustain robust economic growth and dollar surpluses last recorded at $83 billion.

“We can comfortably ride the headwinds,” she said. — VS, GMA News