Upfront
OPINION INTERNATIONAL FINANCING REVIEW ASIASeismic shifts
A
n earthquake in the small hours of Thursday
morning gave delegates at the IMF’s annual
meetings in Bali an uncomfortable reminder
that Asia’s emerging economies remain vulnerable to
UNFORESEENûSHOCKSû4HEûlNANCIALûMARKETSûAREûDOINGûTHEIRû
part, too.
Already overshadowed by the US-China trade war,
another terrible week for risk assets provided a cloudy
backdrop for the IMF and World Bank. Rising oil prices,
slumping emerging market currencies and the worsening
of the trade dispute were all high on the agenda for
policymakers, bankers and business leaders.
The multilateral community faces two important
challenges. Fundamentally, it must reinforce the goal of free
and open trade as a means to promoting shared prosperity.
And in the near term, it must prevent less-developed
markets from being unduly punished as the withdrawal
of quantitative easing raises the cost of capital around the
world.
4HEûRECENTûSHIFTûINûGLOBALûPORTFOLIOûmOWSûISûPROVINGû
especially painful for countries with a high current account
DElCITûnûINûOTHERûWORDS ûEMERGINGûMARKETSûTHATûAREû
investing in the future.
Calls are growing for the IMF to relax its insistence on
lSCALûPRUDENCEûnûTRADITIONALLYûAûPREREQUISITEûFORûlNANCIALû
ASSISTANCEûnûANDûDEVELOPûAûFARûLARGERûCOUNTER
CYCLICALûFUNDû
to help emerging markets continue to invest in growth.
%VENû3INGAPOREûRANûAûLARGEûCURRENTûACCOUNTûDElCITûUNTILûTHEû
1980s.
To do that, however, the IMF will need more capital, and
that is far from straightforward at a time when the US,
its biggest shareholder, is backing away from multilateral
INSTITUTIONSûINûFAVOURûOFûBILATERALûh!MERICAûlRSTvû
agreements.
As if to encapsulate the challenges ahead, Pakistan
formally approached the Fund for assistance last Thursday.
Pakistan sits at a crossroads, vulnerable to both global
CAPITALûmOWSûANDûGEOPOLITICALûTENSIONSûBETWEENûTHEû53ûANDû
China, thanks to its embracing of China’s Belt and Road
INITIATIVEûASûAûMEANSûTOûlNANCEûINFRASTRUCTUREûPROJECTSû
Another IMF bailout for Islamabad will require some
serious manoeuvring to keep all sides happy, but it is
ALSOûANûOPPORTUNITYûTOûRESTOREûCONlDENCEûINûMULTILATERALû
institutions and the long-term potential of a fragile
economy. If the fund manages to achieve both of those
goals, that would be a far more welcome seismic shift.Going through the motions
C
hina's US$3bn sovereign bond issue on Thursday was
only its third in the US dollar market since 2004,
but after last year's triumphant return it was hard
TOûESCAPEûAûSENSEûOFûWEARINESSûANDûD¶J°ûVU ûWITHûALLûEYESû
focused instead on Wall Street's rout.
5NSURPRISINGLY û#HINAgSûMINISTRYûOFûlNANCEûMADEûAûVIRTUEû
of this very ability to sail through heavy weather, which it
BILLEDûASûPROOFûOFûTHEûINTERNATIONALûlNANCIALûCOMMUNITYgSû
CONlDENCEûINû#HINAgSûECONOMICûSTRENGTHûANDûLONG
TERMû
prospects.
It was also a demonstration that China can do things its
own way, from again declining to seek a rating to refusing
to budge on guidance even after US stocks had suffered
their worst fall in eight months.
But since none of that was ever really in doubt, it's hard
not to ask, so what?
Aside from its symbolic value, the practical aim of last
year's return to the offshore bond market was to establish a
sovereign yield curve that other Chinese issuers could piggy-
back on to raise funds at competitive rates. That part of the
plan hasn't worked out so well. With the Fed embarking on
a still incomplete rate-raising cycle and President Trump
unleashing a trade war against the Middle Kingdom,
emerging markets have swooned and harsher credit
MARKETSûHAVEûQUASHEDûANYûBENElTûTHATûTHEûNEWû#HINESEû
sovereign curve might have bestowed on the country's
issuers, especially the weaker ones.
Indeed, it is notable that, as China repeats this now
presumably yearly fundraising, the sovereign has become
one of the country's rare names still capable of getting
its way on duration and pricing. Others have had their
wings clipped, or are stuck in a vicious circle of short-term
RElNANCINGSûATûOFTENûDOUBLE
DIGITûRATES
In the syndicated loan market, Chinese borrowers are
facing exacting scrutiny for fear that they might fall prey to
President Trump's ever-expanding tariffs or get in trouble
should US authorities suspect them of engaging in cyber
espionage or sanctions-busting.
&ACEDûWITHûSOûMANYûPOTENTIALûMINElELDS ûINVESTORSûSEEMû
to have concluded that the only China risk that they are
PREPAREDûTOûSTOMACHûWITHOUTûDEMANDINGûAûPOUNDûOFûmESHûISû
the most generic one, the sovereign itself. This can hardly
BEûWHATû"EIJINGûHADûINûMINDûCalls are growing for the IMF
TOûRELAXûITSûINSISTENCEûONûlSCALû
prudence and help emerging
markets continue to invest
in growth.