Asia Macro View: Ten Asia Themes for the New Decade (by Citi Research)

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Longer-term outlook for Emerging Asia — We depart from our usual short- to medium-term analysis to outline longer-term regional themes for the decade.

Global Reconfiguration. (1) Asia’s Rising Influence — Asia has significant room to attract more global capital flow, and domestic policies will have greater spillover impact on the rest of the world. (2) Evolving Regional Integration – We expect accelerated Greater China integration with enhanced cross-strait ties; Korean reunification is unlikely; more ASEAN integration in goods, services and capital flows, and India increasing economic ties with the East.

Macro Policies: (3) RMB Regionalization before Internationalization — It is likely, in our view, driven by the large scale of the Chinese economy and a favorable trade structure. (4) Fiscal and Financing Trends – Strong growth, low real rates and prudent fiscal policies are expected to keep debt trajectory on a sustainable path with financing bias toward local currency instruments.

Growth Enablers. (5) Investment Rising — Investment is set to rise significantly, including greater intra-Asian FDI, geographical reconfiguration of manufacturing, rising role of services and significant prospects for infrastructure investment outside of China. (6) Demographics – South and parts of SEA see the most favorable shift in dependency ratios; we expect more loosening of China’s one-child policy; fiscal impact of ageing is likely to be a bigger issue in Taiwan and Korea. (7) Innovation – EM Asia, particularly China, Korea, India, Taiwan and Singapore, is demonstrating the strongest potential to narrow the innovation gap with developed markets.

Global Drivers: (8) Climate Change — China and India face the most pressure to reduce emissions; Vietnam and South Asia are the most exposed to agriculture; Bangladesh, Vietnam, India, the Philippines and China are the most vulnerable to extreme weather. (9) Tightened Financial Regulations – Taiwan and Malaysia would likely be the most impacted by Basel 3; Indonesia, Thailand and Pakistan would likely be least affected. (10) Wild Cards — We summarize broad implications of pandemics, terrorism, and uncertainties on succession of the Thai monarchy & North Korea’s regime.

Download Citi Research’s Asia Macro View: Themes for Next Decade