MANILA, Philippines – Financial markets in major Asian economies are closely tied and move in tandem with those in China, explaining the latest bout of volatility sweeping the region, the chief economist of the Department of Finance said.
“The close linkages between Asian countries is evident in the high correlation between their financial market indices,” Finance Undersecretary Gil Beltran said in an economic bulletin last Monday.
According to Beltran’s research, stock markets in nine Asian economies showed a 0.91 correlation to the Shanghai Composite Index.
A positive correlation suggests that bourses move in tandem such as when one rises, the rest also rise, and vice-versa. A correlation of one is considered strong, while zero means no relationship.
The nine countries included in the study were Japan, India, South Korea, Singapore, Thailand, Indonesia, the Philippines and Vietnam.
The relationship between China and the Asian markets tend to get weaker in the foreign exchange segment. Beltran calculated a correlation of 0.46 among the currencies in the region.
Still, “currency rates are also highly correlated,” the official said.
Global financial markets suffered huge selloffs going into the third week of the year over renewed concerns China, the world’s second largest economy, is slowing.
A report yesterday amplified this when China announced its economy grew 6.9 percent last year.
“Volatility in China’s stock and currency markets shook the financial markets of its Asian neighbors,” Beltran said.
Sought for comment, Jose Ramon Albert, senior researcher at the Philippine Institute for Development Studies, said figures showed Asian countries should be watchful of China.
“Clearly, we need to watch out for China. It can make or break our economies,” Albert said in an e-mail.
Based on Beltran’s figures, the Philippine Stock Exchange Composite Index already lost 7.23 percent this year as against Shanghai Composite Index’s 18.03 percent.
Other markets in the region also posted year-to-date losses in tandem with China: Japan (-9.91 percent), India (-6.70 percent), Singapore (-8.74 percent), South Korea (-4.2 percent), Thailand (-3.27 percent), Vietnam (-5.72 percent), Malaysia (-3.78 percent) and Indonesia (-1.5 percent).
For currencies, most have posted gains so far led by South Korean won (3.24 percent), Indian rupee (2.19 percent), Malaysian ringgit (2.38 percent) and the peso (1.87 percent).
They were followed by the Singaporean dollar (1.49 percent), Thai baht (0.9 percent), Indonesian rupiah (0.88 percent), Vietnamese dong (-0.3 percent) and the Japanese yen (-2.7 percent).