May 31, 2017 10:00 pm JST

Nikkei Asia300's movement depends on growth, stability, U.S.

Index gaining as region expected to lead global growth this year

In Asia, there are many companies with dollar-denominated liabilities, such as loans and corporate bonds. © Reuters

TOKYO -- The Nikkei Asia300 Index has been rising recently. The reason is that investment capital has been flowing into Asian markets from around the world in pursuit of growth and yields. However, money can be capricious. Fear of a risk can quickly send money flowing out of a market. Whether money will continue to flow into Asia depends on three factors -- Asia's growth potential, the movement of the U.S. dollar and U.S. long-term interest rates, and the stability of the market environment.

In 2017, economic growth in Asia, excluding Japan, is estimated at 6.4%, compared with 2% for developed countries and 3.5% for the entire world, according to the International Monetary Fund. Capital accumulated in Asia through active trade within the region as well as with developed countries has supported growth in domestic demand, leading to high economic growth and inflation.

Investment money flows into Asia in expectation of rising stock prices and high bond yields that result from growth. To continue to attract money, it is important to seek sustained growth, as in India, Indonesia and the Philippines -- countries where strong leaders are promoting economic reform.

Meanwhile, slowing economic growth in China, which is still in the process of carrying out structural adjustments to reduce excess capacity and debt, is a risk that cannot be ignored. Byron Wien, Byron Wien, vice chairman of Private Wealth Solutions at the Blackstone Group, who is known as an adviser to Wall Street, said he was closely watching China's bad-loan problem.

The U.S. dollar and U.S. long-term interest rates may also have a great impact on how money will move.

Last December, while developed countries were excited about rising stock prices due to expectations for the economic policies of then President-elect Donald Trump, the Nikkei Asia300 Index trended downward as investors became wary of a stronger dollar and higher U.S. long-term interest rates. In Asia, there are many companies with dollar-denominated liabilities, such as loans and corporate bonds. An excessively strong dollar and high U.S. interest rates could cause a string of defaults.

Inflationary expectations later dropped and the dollar and U.S interest rates ceased to rise for a time. However, if the dollar and U.S. interest rates start rising fast again with the implementation of Trump's economic policy, including tax cuts and infrastructure investment, and monetary policy tightening by the Federal Reserve, capital may again flee Asia.

(Nikkei)

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