Though Asian exports clocked strong growth so far this year, Credit Suisse analysts believe the best of the export growth recovery is already behind us and Asia’s export growth will moderate from a mid-teens rate to the mid-single digits for the rest of the year. Santitarn Sathirathai and Michael Wan said in their May 11 research note titled “Asian exports: From great to good” that they believe the Chinese domestic demand growth boost is over.
Chinese domestic demand boosted Asian exports
Tracing the surprisingly strong Asian export growth this year, Sathirathai and Wan note that Asia ex-China exports clocked the highest growth rate in over five years by rebounding from -14% yoy in early 2016 to nearly 20% growth yoy in Q1. The exports growth was also aided by most other economies’ exports posting single digits to mid-teens growth on average in the past six months, despite the contraction in Chinese exports:
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Of note, Chinese domestic demand has aided strong Asia export in the recent past. The CS analysts point out that China contributed to the region’s export growth with robust expansion in China’s import of oil, rubber, and chemical imports. China also added to the Asian export kitty with its strong domestic demand for smartphones and component inventory. The analysts believe these factors propelled Asian exports to China to the highest growth rate since 2011.
Asian export growth to moderate in the rest of 2017
Striking a cautionary tone, Sathirathai and Wan said they believe the best of Asian export growth recovery is over for the year. However, the analysts don’t anticipate a collapse in Asian export growth, as in their opinion, the growth will just be moving from “great” to “good.”
Goldman Sachs agrees noting in a recent report:
Recent weakness in commodity prices, should it persist, would render the recent strength of Asian exports short-lived even if robust memory chip exports continue, unlike in previous upturn cycles that lasted more than 12 months. A rough rule of thumb is that a 1ppt decline in global commodity prices year-on-year could slow Asian exports growth by 50bp.
The CS analysts ascribe four reasons that could pull Asian export growth from the high teens in 1Q to average high single-digit rates for the rest of the year. First, they argue that the Chinese boost is over, with not much anticipation of further acceleration in domestic demand growth. The CS analysts point out that China’s import growth has softened more than the expected consensus. Secondly, the analysts believe other major economies such as the U.S. and the EU won’t replace China demand growth. Thirdly, Sathirathai and Wan note that the Credit Suisse Base Material Index and CRB metal prices also point to slowing in Asia export momentum. Lastly, the CS analysts believe that with commodity base price effects turning into a drag, the base effect will work against the yoy growth in nominal exports.
Goldman ends off with the following note of caution:
The current recovery, having started in mid-2016, might lose momentum earlier than in the previous three upturn cycles in Asian exports. If we assume the continuation of current trends in major export drivers, including moderation in energy and metallic commodity prices and steady sequential rises in semiconductor exports, Asian exports are projected to continue to post positive growth but at a decelerating pace. The slow-down, mostly likely to happen in June or as early as in May in our assessment, would be a departure from the previous upturn cycles in Asia in terms of longevity and strength.
Resonating the above developments, the CS analysts believe that PHP and INR would be potentially exposed to more vulnerability.