For Asian markets the next year might be marked by a shortage of US dollars. Since the victory of Donald Trump on the US presidential election more than 15 billion USD were withdrawn from Asian stocks and bonds, which is about 30% of the total capital inflows to the region since the beginning of the year. The data shows that the strengthening dollar and row protectionist policies of the newly elected US President mar the prospects for growth in emerging markets.
The spreads between interest rates on loans and deposits, domestic demand and the willingness of central banks to deal with the shortage of liquidity would face trial. The reason is that key sources of dollars in the region could dry up if Donald Trump fulfill his key promises in the campaign.
In late November, a number of investment banks, including Deutsche Bank, Citigroup and Morgan Stanley, predicted that difficulties in emerging markets may increase in 2017, partly because of the rising cost of servicing debt in dollars. This will be due to the appreciating dollar against the local currencies amid tightening monetary policy by the Fed. There are many debts in dollars. Loans of the developing economies in dollars to the rest of the world, which need to be repaid, rose more than doubled in the last 10 years to nearly 10 trillion USD.
At the root of the problem, analysts see the stands trade, which is expected in the coming years, to become more hardline. This will hinder emerging markets in conducting cross-border trade and servicing of debts in hard currency. Although Asian markets were relatively isolated from the shortage of dollars in the past two years, this should not be considered as granted.
Evidence of a shortage of dollar funding already appear in the Philippines, South Korea, Malaysia and India, especially in the last month.
Another risk factor may be the repatriation of US corporate profits, which are held on Asian markets, if Trump kept his promise and reform the tax code.
However, analysts do not draw apocalyptic scenarios for the Asian markets next year, as according to them the Asian central banks have stable reserves of foreign currencies (about 6.8 trillion USD). They warned that the management of Trump could change the game for the region as a whole in recent years enjoyed the dollar liquidity.