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Asia Is Exception as Emerging Markets Start to Look Fragile

In the pandemic’s second year, some familiar worries -- about inflation, capital flight or public debt -- are starting to surface across the developing world. Except in one corner. In Asia, policy makers aren’t too preoccupied with these classic emerging-market problems. Their economies look increasingly like they’ve emerged.


Asian Exception

In the pre-pandemic decade, Asian economies posted much faster growth and lower inflation rates than their emerging-market peers


That’s largely down to lessons learned from the traumas of the past three decades –- from the late-1990s regional meltdown to the global crash of 2008 and the so-called “taper tantrum” of 2013 -- and the defenses put in place as a result.


“Asian countries have used past crises to learn and build resilience,” said Sonal Varma, an economist at Nomura Holdings Inc. in Singapore. Their economies now boast hefty foreign-exchange reserves, stronger financial systems and an unassailable place as the world’s manufacturing powerhouse. Their stock markets, like those in the developed world, have posted gains during the pandemic while other emerging regions lost ground.


Top Performers Emerging Asia's stock markets, like those in the developed world, have climbed during the pandemic


In India, which is battling the world’s worst Covid-19 outbreak, the central bank chief has cited the buffer provided by its foreign exchange reserves, which have grown more than tenfold since 2000. “This gives us the confidence to deal with global spillovers,” Governor Shaktikanta Das said Wednesday as he introduced new support measures.


Similarly, Indonesia and Thailand’s reserves are holding near records after expanding more than five- and seven-fold, respectively, over that period.


All of this has left the region’s policymakers largely unfazed by the great inflation scare roiling many of their peers.


With U.S. bond yields on the rise and the prices of food, energy and raw materials soaring, emerging nations like Brazil, Russia and Turkey have been forced into interest-rate hikes this year -– even though their economies are still recovering from Covid-19.


By contrast, central bankers in Asia sound more like the Federal Reserve’s Jerome Powell -- arguing that any price increases will likely be modest and transitory. No emerging Asia economy has raised their benchmark interest rate so far in 2021, and only Pakistan is forecast to do so by year-end, according to Bloomberg.


The region is likely to undershoot inflation targets this year like it did in 2020, TD Ameritrade analysts said in an April 19 report.

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