Latest news with #EmmerCapital
Zawya
6 days ago
- Business
- Zawya
Asia could outstrip Europe as key beneficiary of U.S. capital flight: Raychaudhuri
(The views expressed here are those of the author, the founder and CEO of Emmer Capital Partners Ltd.) As global investors consider reducing their exposure to U.S. financial assets, the key question is where money flowing out of the U.S. will go. While Europe may be the obvious destination, relative value metrics may favour emerging Asia. Even though U.S. equities have recovered from the steep losses suffered in the week following U.S. President Donald Trump's announcement of his 'Liberation Day' tariffs, the same cannot be said of the U.S. bond market. Since hitting a recent low on April 4, the 10-year Treasury yield has spiked by around 50 basis points, with bond investors demanding more compensation for the risk of holding longer-dated U.S. debt. Worryingly, the benchmark Treasury yield has surged higher than nominal U.S. GDP growth – a key risk measure. Additionally, the usual positive correlation between Treasury yields and the U.S. dollar has broken off, as rising yields are no longer attracting money to the 'safest' asset in the world. Broad-based depreciation of the greenback suggests that – despite the equity rebound – many U.S. assets are being sold and the funds are flowing into markets whose currencies are appreciating. EUROPEAN ALTERNATIVE The euro's almost 10% rise against the dollar this year suggests that a significant portion of the capital flowing out of the U.S. is going to Europe, likely driven both by concerns about U.S. policy as well as expectations of higher regional growth. Further monetary easing by the European Central Bank should promote economic activity, as should the expected surge in fiscal spending following Germany's recent constitutional reform, which approved partial removal of the 'debt brake' for infrastructure and defence spending. The fiscal splurge is already offering a boost to European equities – the surprise winner thus far in 2025 – especially defence, industrial and technology stocks. DEBT WOES But there are reasons to question the new 'European exceptionalism' narrative. One likely cause of investors' growing apprehension with U.S. assets is the Trump administration's apparent inability to narrow the country's gaping fiscal deficit or reduce its debt-to-GDP ratio, which has risen to more than 120%. But elevated debt metrics are also an issue across the pond, as they are found in Italy (135% of GDP), France (113%) and the UK (96%). Importantly, both Italy and France have seen their 10-year bond yields rise above their nominal GDP growth rates. While the latter metric is also true of Germany, the country's debt load is modest at only 62% of GDP, so the statistic mostly reflects a stagnating economy that's about to get a spending boost. Fiscal expansion in Europe will likely continue to benefit the region's equities, but whether it is good news for fixed income investment there is still an open question. ASIAN OPTION Meanwhile, in emerging Asia – another potential destination for U.S. capital outflows – the debt picture is better and the growth outlook is stronger. Government debt in many Asian countries is low, ranging from 37% of GDP in Indonesia to around 85% in China and India. Benchmark bond yields across the region have been declining since October 2023, speaking to fixed income investors' limited concerns about Asian countries' fiscal situations. In fact, yields in China, Thailand and Korea are all below those in the U.S., though those in Indonesia and India remain higher. Modest debt burdens mean there is also plenty of room for more fiscal stimulus in many countries, which could improve consumption, while the benign inflation environment should enable central banks in the region to continue cutting rates to stimulate growth. Emerging Asia also offers far more high-growth, technology companies than Europe. The release of the affordable Chinese artificial intelligence model, DeepSeek, Beijing's focus on semiconductors and advanced manufacturing and the country's electric vehicle dominance could all attract tech-focused investors looking for an alternative to the U.S.. RELATIVE VALUE Even though European equities have outperformed their U.S. counterparts significantly in 2025, the twelve-month forward price-to-earnings multiple of the major European index, the STOXX50, is considerably lower than that of the S&P 500, at 15.4x and 21.0x, respectively, as of May 23. But the major emerging Asia equity index, the MSCI Asia ex Japan, is even cheaper at 13.4x. Moreover, earnings growth forecasts are higher in Asia than in either the U.S. or Europe through 2026. Finally, reallocation of assets from the U.S. could potentially have a bigger positive impact on Asia than on Europe because of their relative sizes. Let's say 5% of the U.S. free floating market cap of around $58 trillion, or roughly $3 trillion, moves out. That would represent 36% of Asia's market cap, but only 22% of Europe's. NO SLAM DUNK Caution remains warranted, though. Asian nations' ongoing trade negotiations with the U.S. will likely still encounter numerous twists and turns, and increasing protectionism could hinder the region's more export-oriented economies. Moreover, Chinese economic growth remains tepid despite the monetary and fiscal stimulus delivered over the past eight months. Finally, the capital flowing into emerging Asia is a double-edged sword because of the impact on Asian currencies versus the U.S. dollar. If Asian currencies strengthen much more, the region's export engine could stutter. Investors, thus, have to keep a close eye on macroeconomics, geopolitics and policy statements, not just valuation metrics. But given emerging Asia's benign debt environment and positive growth outlook, both the region's equity and fixed income markets have the potential to benefit from the death of American exceptionalism. (The views expressed here are those of Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd and the former Head of Asia-Pacific Equity Research at BNP Paribas Securities). (Writing by Manishi Raychaudhuri; Editing by Anna Szymanski.)
Reuters
6 days ago
- Business
- Reuters
EUROPE No 'best offers' yet as tariff deadline looms
A look at the day ahead in European and global markets from Ankur Banerjee Today is the deadline for U.S. trading partners to submit their "best offer" to avoid punishing import tax rates, the same day that U.S. duties on imported steel and aluminium kick in, and investors are more jittery than usual. So far, only Britain has struck a preliminary trade agreement with the U.S. during Trump's 90-day pause on a wider array of tariffs. That pause is set to expire in about five weeks and investors have been worried about the lack of progress in hashing out deals. Adding to the angst, Japanese Chief Cabinet Secretary Yoshimasa Hayashi said Tokyo has not received a letter from Washington asking for its best proposals on trade talks. The on-again-off-again tariff pronouncements from Trump this year have investors fleeing U.S. assets and looking for safe havens and alternatives, including gold. They expect trade uncertainties will take a heavy toll on the global economy. The main question in financial markets has been where the money that usually flowed into U.S. assets will end up going. For years, money managers embraced the fatalistic presumption that "there-is-no-alternative" (TINA ... yes, markets love acronyms) but perhaps there are options now. As Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd, puts it: While Europe may be the obvious destination, relative value metrics may favour emerging Asia. The data so far does not give a complete picture. But what it does show is investors are lowering their exposure to U.S. assets, and only time will tell where they end up. Asian markets rose on Wednesday, boosted by tech stocks as traders hope a deal could still be possible if and when U.S. President Donald Trump and Chinese leader Xi Jinping talk this week. The spotlight in Asia was also on South Korean assets. Seoul's benchmark share index (.KS11), opens new tab surged to 10-month top and the currency firmed as liberal presidential candidate Lee Jae-myung's election victory raised expectations for swift economic stimulus and market reforms. European futures point to a slightly higher open ahead of a series of manufacturing data from the region and as the European Central Bank starts its policy meeting. The ECB is all but certain to cut rates on Thursday and stay on its easing cycle as muted wage growth, a strong euro and lukewarm economic growth all point to easing inflation. Data on Tuesday showed euro zone inflation in May eased below the ECB target of 2%. Key developments that could influence markets on Wednesday: Economic events: May PMI data for UK, euro zone, Germany and France Trying to keep up with the latest tariff news? Our new daily news digest offers a rundown of the top market-moving headlines impacting global trade. Sign up for Tariff Watch here.
Zawya
16-05-2025
- Business
- Zawya
ASEAN countries face their own ‘China shock': Raychaudhuri
(The views expressed here are those of the author, the founder and CEO of Emmer Capital Partners Ltd.) HONG KONG - As the United States and Europe have sought to loosen their economic ties with China in recent years, Beijing has focused on expanding its export markets across the 'Global South', particularly in Southeast Asia. But this could create significant economic risks as the region's manufacturers struggle to compete. Regardless of the contours of any eventual U.S.-China trade deal, Beijing's exports to America seem destined to continue falling, as do those to the European Union. The bloc has been seeking to 'de-risk' from Chinese imports and supply chains, particularly when it comes to electric vehicles, batteries and solar power equipment. China's exports to the U.S. and the EU have already been declining steadily for years. In 2018, almost 20% of China's exports were to the United States. By 2024, this was down to 14.7%. The proportion of exports to the EU also declined, though less dramatically, from 17.0% to 14.4% during this period. China has actually been reducing its export dependence on all developed economies, including Japan, South Korea and Taiwan. Instead, the manufacturing powerhouse has been expanding ties with the 'Global South', particularly Southeast Asian nations (ASEAN). In fact, 16.4% of China's exports went to ASEAN in 2024. That's more than the shares claimed by the U.S. or the EU. WANING TRANSSHIPMENT China's focus on ASEAN accelerated after the 2018 trade war that started during U.S. President Donald Trump's first term, as exports bound for America appeared to be re-routed through Southeast Asian countries. The most notable example of this is Vietnam, whose incremental exports to the U.S. matched its incremental imports from China almost exactly in the first few years after the beginning of the previous Trump trade spat. But China is increasingly struggling to maintain this transshipment route. The Trump administration originally slapped staggeringly high 'reciprocal' tariffs on ASEAN economies on April 2, partly to hinder this export re-routing. While these tariffs have since been delayed, several Southeast Asian governments have begun to crack down on violations of 'country of origin' rules by their exporters to defend their reputations as responsible trade partners. And even though Chinese exports to ASEAN economies are currently mostly intermediate goods that are re-processed and exported, that is starting to change as more finished goods are ending up in Asia's domestic markets. CAVEAT EMPTOR These ASEAN imports of low-priced finished goods from China, many sold through e-commerce platforms, have already become a bugbear for local manufacturers, particularly in Indonesia and Thailand. In Indonesia, as imports of Chinese clothing have risen in recent years, the country's own textile sector has laid off workers, including 80,000 in 2024, with 280,000 more estimated to be at risk in 2025. In Thailand, more than 100 factories, mostly small and medium-sized enterprises, closed down every month from 2021 to 2024. According to independent think tank K- Research, these factories were mostly manufacturing furniture, electronics, garments, automotive and steel – all industries that have faced competition from inexpensive Chinese goods in recent years. Of course, Chinese foreign direct investment is also surging in ASEAN, particularly in the much touted 'New Three' sectors: EVs, batteries and solar energy. For example, Chinese automaker BYD commissioned a 150,000-unit EV factory in Thailand in July 2024, and Chinese battery maker CATL announced a $5.8 billion investment in Indonesia's nickel sector in 2023, though that was recently scaled back by half. While these investments have created jobs and helped ASEAN's integration into global supply chains, they have also disrupted local supply chains. In Thailand, oversupply of EVs has led to price wars and production cuts in the country's traditional auto market, resulting in the closure of a dozen of the country's auto parts manufacturers. Manufacturing seems to be stagnating across the region. Manufacturing PMIs are currently in the contractionary zone and on a steadily declining path in all the large ASEAN economies, reflecting both concerns about the trade war and the negative impact of increased Chinese exports to these markets. IMPORTED DEFLATION China's trade partners also face the prospect of cheap products pushing down prices in their home markets. Such imported deflation could potentially create a downward economic spiral in ASEAN economies, where consumers postpone purchases and companies delay investments, reduce wages and lay off workers. Some countries in this region, notably Thailand, are already experiencing deflation alongside China. Malaysia and Singapore may get there rapidly. Given all this, China's ASEAN trade partners will need to navigate today's ever-shifting trade and investment landscape with great care and trepidation. If history is any guide, we are likely to see these countries seek to boost domestic demand and pursue industrial policies to protect domestic companies. This protectionary impulse means the current trend toward greater ASEAN trade integration may start to slow. (The views expressed here are those of Manishi Raychaudhuri, the founder and CEO of Emmer Capital Partners Ltd. and the former Head of Asia-Pacific Equity Research at BNP Paribas Securities). (Writing by Manishi Raychaudhuri. Editing by Anna Szymanski and Mark Potter)
