Asia will be silver lining within emerging markets in 2015

IT MAY sound contradictory to say that Asian economic growth outside Japan will slow next year, and yet the region will be a silver lining for emerging markets. But both statements are likely to hold true. Asian emerging markets are mainly net importers of commodities and will remain supported by tailwinds such as the recent falls in commodity prices. They are also better placed to weather tighter funding conditions caused by rises in the US dollar and US market interest rates. Despite lingering issues like falling property prices and rising corporate debts, Asian emerging markets should hold up relatively well next year.

At first glance, the backdrop facing Asia outside Japan is lacklustre. We expect economic growth to fall from 5.6 per cent this year to 5.4 per cent in 2015. Exports should benefit from higher demand for US capital expenditure, but weak trade within Asia may hamper growth. Domestic demand will face some headwinds from higher real interest rates and slower credit growth. A continued downward creep in property prices across key cities and high private sector leverage will not help. Relative to developed markets, Asian equities have typically…