Turmoil in the growth locomotive, Asia

Since 2012, the world economy is in the clamps of an “average growth” period. Latin America, Central and East Europe have lost their excitement of growth. Despite the U.S. and England partially recuperating, there is a hesitant economic environment, in the geographies of the developed countries, especially in Europe,

in which the communities are thirsty to grow and skeptical. From the American to the Asian Continent, including Africa and countries like Turkey who are leading in economic growth, the number of countries who have grown at 3 percent or more, can be counted on the fingers of one hand. There are good growth rates in poor economies, which have not yet integrated into the world economy; but these rates are as small as an atom particle next to the world economy.

It is for this reason that, in the last three years, Far East Asian countries, with China leading and of course India, have turned into economies that have been closely watched by all international institutions and global investors. The global economy actors were at least consoled with the weight of these economies, which grew by the day and showed a good growth performance. However, when the growth signals started to show signs of “deterioration”, the global economy actors became alarmed. These countries were contributing to the economies of other countries by importing raw materials and intermediate products from them during their process of production. Now that the Far East Asian economies have shown signs of negative signals in production, the whole global system is alarmed.

These days the politicians of the Far East and South East Asia economies are searching for ways to recover the decrease in value of equity shares due to the “deterioration” signals of the growth periods; but their job is extremely hard. When viewed from this aspect, Thailand, Taiwan, India, South Korea, Philippines and Singapore have room to relax the monetary policies of the central banks of their countries in order to activate the slowed down growth rates. Yet, this option does not seem suitable for Indonesia and Malaysia from the very beginning; because both rupiah and the ringgit are being traded at the lowest values of the past 17 years, thus these two countries relaxing their monetary policies will only increase the devaluation of their currencies. Indonesia has caused a stir in the business world by increasing the taxes on the import of jewelry and electronic items in order to lower the current deficit, instead of relaxing its monetary policy.

The South Korean and Singaporean politicians on the other hand, before loosening their monetary policies, are planning to clear the air in their economies and elevate their markets by playing around with their taxes and lowering the credit costs of the real sector. IG Market's head strategist Chris Weston emphasized that; he expects more to be done than just postponing the increase in FED taxes (which were expected to happen earlier but is believed by markets to be postponed) to December. He said the steps taken should be inspirational, peculiar to Asia but coordinated by many countries and thus then these steps would be beneficial. At this point, we shouldn't forget the appeals of the global market actors, this week, led by the English Finance Institution Barclays, to discuss the FED interest rate hike in March 2016 instead of in September. Senior economist Vishnu Varathan from the Mizuho Bank stated that: it is necessary to take globally scaled, coordinated steps to scatter the low-spirit in the market by turning around the escape from risky assets like equity shares. He also added that it didn't mean that the steps taken would loosen the global central bank policies.

Last weekend, Cesar Purisima, renowned financer of the Philippines, emphasized that Asia should avoid competing with the low valued Yuan of China, because of import expenses and high credit score requirements, in order to support the real sector. The central bankers of Indonesia and India underlined that; in spite of the loss of value in currencies of the observed countries, they would interfere if currencies continued to fluctuate, adding that they were unhappy with China's devaluation interference. Purisima also emphasized that; while currency rates are used to increase the power of competition, these countries, especially China, need to be careful not to fall into a conflict of interests. Purisima also stated that; in the case of an increase in interest by the central banks of Asian countries, the charm of the equity shares and exchange bills (who are currently at risk) will decrease.

Muhammed El-Erian, one of the world's most famous fund managers and previous director of Pacific Investment Management Co (Pimco), stated that the reason for the questioning of a possible interest rate increase in September by the FED and William Dudley of the FED giving reasons for why an increase in interest rates isn't necessary, is because the U.S. and the FED have realized that you cannot own a bigger house by being bad neighbors or belittling your neighbors.

According to El-Arian, the FED will take the whole world into consideration and will not contribute to financial destabilization. He also reminds that it is crazy to expect a fourth monetary easing from the FED.

Options traders are betting that the FED will postpone an interest increase: According to the data compiled by Bloomberg, the chances of FED going to an increase in interest in September, declined from 40 percent during the end of July to 30 percent.

El- Arian says the last comments of Ray Dalio, the millionaire founder of Bridgewater Associates, stating that if the FED increases the benchmark interest rate by even less than 1 percent, quantitative easing may restart, are misleading comments.

El-Arian said, “Whenever there is a bit of a market commotion, people immediately want the FED to do more,” and added that “the QE4 (the fourth tour of monetary expansion) is a dream.”

In the past week, the most important development in pushing global markets into unrest was serious concerns about the Chinese economy. Seeing China's growth rate falling under 7 percent, making three devaluations in the same week in order to take measures against the insufficiently growing, moving world economy and global trade, concerns about how to compete with Chinese products during exports, the status of the countries that survive with exports to China, the uncertainty to whether the U.S. central bank FED would take steps to increase interest rates despite all these global developments, have caused: an uncertainty in the capital outflow of many developing countries, money losing value and the downfall in the stock markets of the U.S. and leading economies. Turkish investment tools have also taken their share.

Yesterday, a few hours before I started to write these lines, the Chinese Central Bank took the move expected by global markets, and decreased interest by 25 base points. Since November 2014, the Chinese Central Bank has decreased interest rates five times. It is expected that a decline in the equity share markets will slow down or stop, and the efforts to stop economic slowdown will increase. China dropped its indicative interest rate by 25 base points to 4.6. Last week falling to a shallow trading volume of 3TL, the dollar/TL is currently in the 2.96-2.92 band. We should be hopeful that, with the air calming down in the markets, the dollar/TL will return to 2.92-2.88 TL.