ASEAN KEY DESTINATIONS
US, Euro and now China concerns hit Asian marketsBy David Swartzemtruber
The euro has plunged against the dollar as Italy debt fears triggered risk aversion, the trader added.
EU finance officials have discussed options for resolving Greece’s intractable debt crisis and galvanizing the growing threat of contagion to Italy, the euro zone’s third largest economy.
According to some analysts, a default by Greece would be enough to set off a widespread sell-off in the financial markets but a default by Italy would be worse than Lehman. This weighed heavily on Asian currencies, being an emerging asset. In reference to the US investment bank Lehman Brothers, whose financial difficulties in 2008 touched off the global financial crisis.
The Chinese economy is now in an uncertain period. In recent weeks, Chinese equities have fallen to near nine-month lows as investors became wary of stubbornly high inflation, signs of slower growth and rumors of further rounds of aggressive monetary tightening.
Are investors right to worry, or are these passing fears that will make way for another round of optimism, as we have seen so many times before?
China matters for everyone, having recently overtaken Japan as the world’s second-largest economy. Its demand for commodities drives their prices up and keeps commodity producers from Australia to Zambia in vibrant shape. Any sudden slowing of growth in China would drive the prices of raw materials linked to industrial production down — from prices of rubber to those of base metals such as copper and nickel, all of which are important for a country like Indonesia.
China’s demand for intermediate products is also critical for many of Southeast Asia’s manufacturing sectors and Chinese tourists are now the strongest growth segment in the global tourism industry — another sector that is vital for most Southeast Asian countries. China’s macroeconomic policies also affect all of us. If it chooses to depreciate its currency, the impact will be to depress Asian currencies as well.
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