The outlook for EM Asia sovereign ratings in 2017 is “stable”, but potential vulnerabilities include increased protectionism, a stronger US dollar and higher political risk across both advanced and emerging economies.
Nine of the 11 Fitch-rated EM Asia sovereigns currently carry a “stable” outlook.
The median of Fitch’s real GDP growth forecasts in 2017 for the 11 EM Asia countries it rates is 5.5 per cent, substantially higher than in other regions (3.5 per cent for EM Middle East and Africa, 2.9 per cent for EM Latin America and 2.8 per cent for EM Europe).
Without China, which makes up 69 per cent of the region’s gross domestic product, the weighted average growth is expected to be 6.3 per cent in 2017 and 6.4 per cent in 2018, from 5.9 per cent in 2016.
All EM Asia entities except Mongolia are expected to grow faster than the medians of their rating categories.
Global trade in 2017 will present limited upside for EM Asia and a long-term growth impetus presented by the Trans-Pacific Partnership now seems off the table after President-elect Donald Trump said the US would pull out of the agreement. Some Asian countries, such as Vietnam, were expected to gain substantially from the TPP.
It is unclear to what extent regional alternatives, such as the China-led Regional Comprehensive Economic Partnership, can make up for this loss.
Domestic sources of growth include an infrastructure boost and the implementation of ambitious reform agendas in some Asian economies, such as India and Indonesia.
Room for monetary and fiscal policy easing differs from country to country. Limited room seems to exist in EM Asia for a policy rebalancing from monetary to fiscal stimulus similar to what Fitch expects in advanced economies.
Among EM Asia entities, Fitch expects a widening of the fiscal balance in 2017 only in the Philippines (to minus-3.0 per cent of GDP in 2017 from minus-2.4 per cent of GDP in 2016).
Public debt levels are high in some countries, such as India, and credible fiscal policy rules prohibit further fiscal stimulus in Indonesia.
A strong US dollar in 2017, which Fitch anticipates, amid signs of the US Federal Reserve’s intentions to raise interest rates, and increased public spending in the United States, could weigh on economies with large external refinancing needs and/or those that rely heavily on foreign-currency-denominated debt.
A strong dollar has already weakened the external-debt dynamics of Mongolia and Sri Lanka – exacerbated by low commodity prices in Mongolia’s case – and the combination of this and severe fiscal slippage prompted Fitch to downgrade both sovereigns this year.
EM Asia countries are relatively exposed to a severe China slowdown scenario, though that is not Fitch’s base case. Vulnerabilities are building up further in China, as policy settings continue to prioritise rapid growth over macroeconomic stability and debt levels across the economy continue to rise, at least until 2018.
However, Fitch says it believes China still has the administrative and financial resources to address these imbalances without a disorderly adjustment, even though its capacity to do so diminishes with time if not addressed.

After yesterday’s monthly meeting, committee chairman Isara Vongkusolkit said the 4.4-per-cent decline in overseas shipments in October could result in a full-year export contraction of 1 per cent, or flat growth.
Moreover, the weakening of the Malaysian ringgit could affect Thai export competitiveness.
“The economy could grow below the previous projection of between 3.3 per cent and 3.5 per cent this year, due to weakening shipments. However, the committee is confident of seeing economic growth of 3.5 to 4 per cent next year,” he said.
Factors of concern for next year are the new trade policy of US president-elect Donald Trump, the direction that the Federal Reserve takes on the US policy interest rate, increased oil prices, elections in the Netherlands, France and Germany, and uncertainty over economic growth in the European Union, he explained.
Isara said the key engines driving the economy next year would be the government’s Bt422-billion budget disbursement and investment projects, the handout to 8 million poor people, and tax-deduction measures in relation to shopping and travelling – with the latter measures alone injecting as much as Bt30 billion to Bt40 billion into the economy at the end of this year and the beginning of 2017.
The JSCCIB chairman also said the private sector expected the government’s payment of Bt100 billion to 18 provinces from February to September next year should help stimulate the economy by another half a percentage point.
As to export performance next year, the committee foresees growth in the region of zero to 2 per cent.
Isara said private enterprises expected the domestic economy would witness a clear recovery in the second and third quarters of next year, although the agricultural sector would continue to struggle the most due to uncertainty over crop prices.
The private sector also foresees lower profits and sales next year, while selling prices are expected to remain unchanged.
Meanwhile, the joint committee has called for the government and the Bank of Thailand to facilitate financial transactions via commercial banks between Thailand and Iran, following the US announcement in January of the lifting of sanctions on the Middle Eastern country.

Slowing foreign investment is anticipated this month as foreign interests wait to see what US trade and investment policy will be next year.
Mongkol Puangpetra, senior director at KTB Securities (Thailand), said higher oil prices and the Thai government’s stimulus measures were positive factors for the SET.
Apichai Raomanachai, deputy managing director for research at Apple Wealth Securities, forecast the SET Index to swing in a range of 1,4881,540 points this month, likely driven by more than Bt2 billion in purchases of LTFs and RMFs and energy stocks after the Opec’s decision for lower production. At this level, the forward pricetoearnings ratio is 14.014.5 times.
Opec slashed its daily crudeoil production by 1.2 million barrels to 32.5mmbd, which could boost the oil price to US$55 per barrel next year. “The energy group gains after the Opec decision,” Apichai said.
He noted that the US Federal Open Market Committee would convene on December 13 and 14, which would likely strengthen the US dollar against currencies in Asean and cause foreign capital to move out of the stock markets of Thailand, Indonesia and the Philippines (TIP).
In Thailand, KTB Securities expects foreign investors to continue sales of Thai stocks, or not to buy them, which will pressure the SET and make other investors afraid of stock purchase during this period, Mongkol said.
The SET Index yesterday rose 0.98 per cent or 14.82 points to close at 1,516.48 with trading turnover of Bt39.69 billion as foreign investors netbought Bt1.24 billion.

IT IS crucial for the film and other creative industries in China to develop their own intellectual properties to maintain healthy growth, a forum heard.
China aims to be the world’s No 1 film market, reaching an audience of 2.5 billion and earning US$15 billion (Bt534 billion) in box-office revenue by 2020. To achieve those goals, the creative industries are putting more emphasis on developing IP to help reshape the value chains of film, novels, online video, TV series, games, variety shows, music, theme parks and derivative products.
Emily Dai, Web drama general manager of iQiyi, a video-on-demand service based in Beijing, said many Internet platform operators had developed and produced their own content to cash in on the changes in viewing behaviour of Chinese audiences from TV sets to mobile devices and tablets.
“However, the critical key to facilitate the development of the IP industrial chain is the quality of the content,” she said.
Dai shared her views and thoughts at a panel discussion on “Strategic IP Management in China’s Film and Creative Industries”. The seminar was held last week in Hong Kong under a collaboration between the Business of IP Asia Forum and China Daily newspaper.
Liu Kailuo, president of Heyi Pictures, said the film industry needed to seek new healthy growth by developing derivative products to spread risk and to avoid over-reliance on box-office earnings. Liu pointed to a film of his own, “Surprise”, as an example. Through developing Web-based IP, this movie has been able to obtain 60 per cent of its total revenue from non-box-office earnings.
“Therefore, the IP development and creation should not focus only on content but also a whole pyramid. [Having an] online platform is very helpful for film development,” he said.
Although the film industry in China is expected to grow by at least 19 per cent a year through 2020, |box-office earnings in the second quarter of this year saw a slight decline, partly due to depreciation of the yuan.
However, the industry is still expected to reach 44 billion yuan (Bt227 billion) in total revenue this year.
William Feng, head for Greater China and vice president for Asia-Pacific at the Motion Picture Association (MPA), said the industry had to be patient in developing it own IP like in Hollywood, where some US filmmakers covered the costs of IP management before releasing their movies into the |market.
“What the Chinese movie industry lacks is not talent, capital or a market, but patience,” he said.
Xiao Fei, board chairman and chief executive officer of Beijing UP Picture Group, said IP incubation and creation were open sources of revenue and important for long-term growth.
“But it is hard to find talented incubators and creators, and the big question is how to promote China’s IP to global stages or markets,” he said.
Pirated content in China was one of the greatest concerns raised by the panellists. Li Lei, deputy director of Filmko Pictures, said being creative and telling a great story were the best way for the film industry to protect its intellectual property.
“Other people will find it difficult to copy if you are telling a fantastic story,” he said.

Vietnam is among the 12 Pacific Rim nations that have signed on to the TPP. Vietnam’s manufacturing industry, especially the textiles sector, would expect to receive incentives from zero tariffs under the TPP trade deal.
Bangkok Bank’s executive vice president of the international banking group, Chaiyarit Anuchitworawong, believes that Vietnam will remain a key trade partner of the United States and the two countries could make a bilateral agreement if the TPP were withdrawn.
“A bilateral agreement will support Vietnam’s trade and FDI. Furthermore, [the number of] people of working age and low wage costs are positive factors to lure FDI, and we believe that Vietnam’s economy will not receive a negative impact from the TPP withdrawal,” he said.
Siam Commercial Bank, which opened a branch in Vietnam in May, also believes that a TPP withdrawal would not affect its business plan because FDI in Vietnam is quite strong and the low wage cost is another key factor attracting investment, said Kamalkant Agarwal, the bank’s first executive vice president.
Last year, FDI in Vietnam surged to US$22.76 billion (Bt812 billion) from $12.5 billion the previous year.
Thai investors ranked 11th in FDI in Vietnam.
Kamalkant said the bank was at the stage of building a firm foundation in Vietnam and Thai companies were its priority focus, while the TPP was not a factor in its 2017-18 business-expansion plan.
Vietnam still is on the radar of Kasikornbank, the fourth-largest Thai bank by assets, with the lender ready to establish a presence there once the central bank of Vietnam grants it a licence, said KBank president Kattiya Indaravijaya.
Chaiyarit said a TPP withdrawal might have an impact on China’s economy if authorities there reverted to running the economy like they did before the reforms three years ago focusing on domestic consumption, while China’s “Go South” policy is positive for Asean.
Mainland China and Taiwan are the focus of Bangkok Bank in line with the Go South policy, particularly Taiwan, where corporates are seriously looking at overseas expansion to diversify risk as a result of the economic slowdown in Thailand, Chaiyarit said.
Bangkok Bank has three branches in Taiwan, which can refer corporate clients to the bank’s head office in Bangkok to facilitate financial services, he said.
Chaiyarit said Taiwanese firms wanted to expand their value-added business in Asean, meaning Bangkok Bank’s international business in 2017 is expected to perform better than this year.
Still, the growth of its international banking is projected to be in the single digits as the bank remains conservative to tackle unexpected risks, he added.
KBank hopes to become the second Thai bank after Bangkok Bank upgraded to local-bank status in China, Kattiya said.

 The December 13-14 FOMC meeting is fast approaching and the Fed funds rate is expected to be bumped up at least 25 basis points from 0.5 per cent. It seems that there’s more concern over capital outflows from the Thai bourse, periodically pressuring the SET Index. Here, two factors need consideration – next year’s direction of the Fed funds rate and foreign capital movement in the Thai stock market.
If the Fed funds next year increases by 25 basis points to 0.75 per cent in this month’s meeting, the real interest rate is still nearly minus 1 per cent, based on US inflation of 1.6 per cent in October. The discrepancy seems to be a gap for more rate hikes, so it’s possible to see three to four US rate increases over the eight FOMC meetings next year.
Thailand’s policy rate is 1.5 per cent. Based on the country’s economic recovery and inflation, no rate increase is expected and the baht will likely weaken against the US dollar. Principally, capital will move into US dollar-denominated assets.
In this environment, the likely outflows |of foreign capital are not expected to fuel much pressure on the SET Index, as foreign holdings of Thai stocks in the Thai stock market are now lower than normal. Foreign holdings including those through NVDRs of Thai stocks stay at only 30.2 per cent, a record 10 year low. Its highest in 2013 was 37 per cent.
Foreigners’ net purchases in each period are also low. So far this yeart, their net |accumulative purchases are below Bt80 |billion, compared to the peak of more than Bt400 billion. Besides, the SET Index, one month earlier, found foreign investors becoming net sellers of Thai stocks nearly every day. Their net sales were about Bt43 billion. However, the SET rose above 1,500 points again.
It’s believed that foreign capital will |likely flow out of the Thai bourse for the rest of this year, however, thinning gradually. That could limit pressure on the SET. On the other hand, local institutional investors will likely pour more funds into the Thai stock market, given the time frame of LTF/RMF purchases.
Other interesting factors that could make alternatives for investment include fiscal stimulus likely building up positive impacts on several groups extending from construction (UNIQ) to retail (BJC), and oil prices rising to benefit energy and petrochemical stocks (PTT and IVL).

Prakit Sirivattanaket
Vice president
Kasikorn Securities

The government has launched relief measures for the tourism industry, aiming to attract foreign investors, starting from a waiver of the Bt1,000 visa fee and reduction of the Bt1,000 visa fee at specific immigration posts from December 1-February 28.
A tax deduction has also been introduced for spending on tourism-related services and hotel accommodations throughout this month.
Given the bigger amounts and longer periods of such measures, the tourism industry is expected to gain to a certain level after the sluggishness amid the suppression of illegal zero-dollar tours and national mourning for the late King Bhumibol. Hotel (ERW MINT CENTEL) and airport (AOT) groups will directly benefit. Low-cost carriers such as AAV will gain more advantages than full service providers like BA or THAI.
Short-term positive sentiment is anticipated for speculation in sluggish hotel and air-freight groups. Late last year, the tourism industry dramatically rose 2.5 per cent in December before moving in negative territory of 0.9 per cent on profit taking late in the month due likely to its sharp rises of 9.9 per cent since November 2015.
Last December, ERW topped the list, climbing 6.7 per cent, however, at the close, narrowing its gain to only 1.9 per cent. Similarly, CENTEL peaked at a 6.6-per-cent gain before profit-taking and then fell 2.8 per cent. MINT edged up 2.7 per cent before dropping 1.4 per cent.

Malee Cholumlerd, director-general of the department, said next year the department would emphasise many active plans in a bid to promote stronger export growth.
They will include drawing up strategic partnerships with trade-partner countries as it believes this strategy could effectively solve trade barriers and non-trade barriers as well as increase trade facilitation between Thailand and its trading partners.
The government will also nominate Thai nationals as advisers in targeted overseas markets who work for large companies operating in those markets so they can help drive Thai trade and investment. For example, Berli Jucker will help drive exports to China and Asean markets and CP will help support Thai goods trading at Super Brand Mall, a department store under CP in China. In Europe, Central Group will give advice to Thai traders and investors on how to penetrate European markets as the company has many businesses in Europe such as in Italy and Denmark. Thai Union Frozen will help drive Thai shipments and investment in the US. Sahapat Group will do the same for Japan and South Korea, while Double A will be used to boast shipments in the Middle East. SCG will be utilised for India.
Thailand will also ask foreign business people how the country can better penetrate targeted countries, and those people will be nominated as trade representatives or special trade envoys. Those countries are China, Russia, Peru, and Kazakhstan. Thailand will also emphasise promoting quality and innovative goods, as well as creating good positioning for Thai products.

“We now stand on two legs – a financial centre and a strategic location for the intellectual property trade,” said Gregory So, Hong Kong’s secretary for commerce and economic development.
He explained his vision at the sixth Business of IP (Intellectual Properties) Asia forum in Hong Kong where business leaders from across the globe shared their thoughts and experiences on the future of IP creation, trading and collaborations.
Hong Kong is now putting more emphasis on IP strategies to attract international companies to register their IP and innovations ahead of the digital transformation in the near future when the Internet of Things (IoTs), automated solutions, industrial 4.0, artificial intelligence and augmented reality technology, which are expected to be in place by 2025.
“This will shape a new value supply chain and help reduce costs in production,” So said.
In addition to this, Hong Kong chief executive C Y Leung this year injected US$2.3 billion (Bt82 billion) into a variety of initiatives to encourage start-ups, promote mid- and downstream research, and upgrade the infrastructure of the region’s Science Park and industrial estates.
The move aims to ensure that Hong Kong remains an economic force in the 21st century.
“All that, and the world’s IP powerhouse at our doorstep,” Leung said. “The mainland of China has topped the world in the number of applications received regarding patents, trademarks and designs in recent years. China also imported more than $31 billion in technology from around the world in 2014.”
Hong Kong has revamped its IP-related regulatory framework to protect all registered IPs.
The Department of Justice said that the country offered IP professionals and intermediaries such as IP agents, accountants, valuers, financiers, lawyers, arbitrators and mediators.
Laws and regulations help IP owners in technology transfer, licensing, franchising, merchandising, copyright trading as well as dispute settlement.
During this forum, the Hong Kong Trade Development Council (HKTDC) will sign a strategic memorandum of understanding agreement with three new partners – the British Columbia Institute of Technology, the Okinawa Invention and Innovation Institute and the Taiwan Corporate Patent Executives – to enhance their information exchange and cooperation in IP.
The HKTDC will also sign another MoU with the Chongqing Intellectual Property Office for the same purpose.

In summary, 2017 looks like it will be the most difficult for the region since 2009. It’s not, of course, entirely the president-elect’s fault – his administration, after all, hasn’t even outlined a detailed policy agenda yet, let alone taken the reins of power.
Plus, Asia’s travails are partly self-inflicted. Still, if the past few weeks are any indication, things are bound to get a lot tougher. Trade is one thing, with exports already struggling and little prospect for a policy-driven rebound. The bigger issue, though, is the dollar and rates. Financial conditions are tightening across the region, putting a squeeze on domestic demand. It will get bumpier still.
Start with exports. These, as noted, have struggled for some time now. A combination of factors is to blame, including weak capex the world over, the commodity investment slump, creeping protectionism (or at least the absence of major trade liberalisation over the past decade), supply chain disintegration, and an expenditure shift towards services.
The question for 2017 is whether exports will at last rebound. We have our doubts. An acceleration in US growth should help. Yet this may be offset by continued sluggish demand elsewhere in the world, not least in emerging markets.
The Trump administration may also help spur a recovery in US private capex, via deregulation and purportedly more business friendly policies. Yet it will take time before the full impact is felt, leaving this to be, presumably, more of a story for 2018 and beyond.
The key to watch will be a deal with Congress to repatriate offshore cash holdings by US companies, but it’s not clear that this in itself will send capex soaring if record-low rates previously failed to do so.
At the same time, a Trump administration may adopt a more protectionist stance. True, details aren’t available yet, apart from some vague talk about punitive action and the promise to shelve the Trans Pacific Partnership. This, no doubt, will restrain exports, even if the impact will likely be more industry specific. But note that uncertainty over the US’s trade policy in itself will promptly weigh on growth in Asia by curtailing investment.
It’s hard to see, therefore, a meaningful revival in Asia trade for the foreseeable future. However, the bigger issues, at least in the near-term, are US rates and the dollar. In fact, HSBC’s chief US economist Kevin Logan now expects three Fed hikes over the coming year (up from two).
This amounts to a stiff headwind for Asian economies that have come to rely on rapid credit growth to sustain demand in recent years. Even China, still partly protected by capital controls, is not immune to this. Elsewhere, rate cuts are also becoming a more remote prospect, such as in Malaysia where policy room is shrinking even as growth sags.
Currency moves are compounding the effect. While exchange rate depreciation should, in principle, provide a boost to Asian exporters, the resulting tightening in financial conditions (higher rates) could more than offset the loosening of monetary conditions (weaker exchange rates). Challenging stuff. But the effects are not necessarily uniform across Asia. Indonesia, the Philippines, and India are likely to be more shielded from the “Trump effect” given their low debt and low export exposures. By contrast, Malaysia, China, South Korea, Taiwan, and Thailand should be more affected.
The winner, if one can call it that, is the Bank of Japan, with the weaker yen taking the pressure off. But that’s not much of a consolation: Japan, too, will in the end need exports to do a lot better to cure its growth malaise.

Frederic Neumann, the author, is co-head of Asia Economics Research, HSBC