Nikkei PMIs Dash Hopes for a Broad-Based EM Asia Regional Recovery

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Any hopes for an incremental and sequential recovery in activity across EM Asia received a bit of a setback on Tuesday with October manufacturing (Nikkei) PMIs by and large coming as a damp squib, especially in South-east and South Asia. This will keep alive the clamor for more policy easing in North Asia and hope for the same in South and Southeast Asia once the Fed meeting is behind us.
A few regional and country-specific points follow:

PMIs held steady m-o-m at 49.1 in Korea and improved a bit, to 49.5 (from 47.8) in Taiwan, possibly highlighting a bit more traction in manufacturing activity from a recovery in US and several parts of Europe, and a bit less of a downdraft from China.

But they plunged in Malaysia and Indonesia, respectively, to 47.0 and 46.9 (from 48.1, and 47.8) highlighting the commodity-related vulnerabilities, and, at least in Malaysia’s case, some idiosyncratic risks from local politics (1MDB scandal, etc.)

However, in Indonesia’s case, we would have expected the manufacturing PMI to have edged up, as fiscal spending on infrastructure has been picking up. Therefore the setback here could reflect either fiscal spending hasn’t been as strong or effective, or that it has been insufficient in the face of the drag from commodities. This will raise the local market clamor for Bank Indonesia rate cuts. On the positive side, inflation has fallen back sharply to within the central bank’s target range (to a sub 5% rate.) But the sufficiency of the thicker real policy rate cushion will be quickly tested by the markets to see if it can offset the risks from meager FX reserves and possible increases in the fiscal deficit.

Meanwhile, PMIs in India and Vietnam also edged lower. In Vietnam the manufacturing PMI eased to a rare below 50 level of 49.5 (from 50.1). In India, the PMI eased to 50.3 (from 50.7). We remain less concerned about these two countries more generally, as export-led activity remains strong in the former and domestic demand supported by incremental reforms and fiscal spending underpins the economic and credit prospects of the latter.

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The comments provided herein are a general market overview and do not constitute investment advice, are not predictive of any future market performance, are not provided as a sales or advertising communication, and do not represent an offer to sell or a solicitation of an offer to buy any security.  Similarly, this information is not intended to provide specific advice, recommendations or projected returns of any particular product of Standish Mellon Asset Management Company LLC (Standish).  These views are current as of the date of this communication and are subject to rapid change as economic and market conditions dictate. Though these views may be informed by information from publicly available sources that we believe to be accurate, we can make no representation as to the accuracy of such sources nor the completeness of such information.  Please contact Standish for current information about our views of the economy and the markets.  Portfolio composition is subject to change, and past performance is no indication of future performance.
BNY Mellon is one of the world’s leading asset management organizations, encompassing BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies. BNY Mellon is the corporate brand for The Bank of New York Mellon Corporation. Standish is a registered investment adviser and BNY Mellon subsidiary.
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The comments provided herein are a general market overview and do not constitute investment advice, are not predictive of any future market performance, are not provided as a sales or advertising communication, and do not represent an offer to sell or a solicitation of an offer to buy any security.  Similarly, this information is not intended to provide specific advice, recommendations or projected returns of any particular product of Standish Mellon Asset Management Company LLC (Standish).  These views are current as of the date of this communication and are subject to rapid change as economic and market conditions dictate. Though these views may be informed by information from publicly available sources that we believe to be accurate, we can make no representation as to the accuracy of such sources nor the completeness of such information.  Please contact Standish for current information about our views of the economy and the markets.  Portfolio composition is subject to change, and past performance is no indication of future performance.
BNY Mellon is one of the world’s leading asset management organizations, encompassing BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies. BNY Mellon is the corporate brand for The Bank of New York Mellon Corporation. Standish is a registered investment adviser and BNY Mellon subsidiary.

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