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Asian markets drop in October

October 2018

Asian equity markets generally posted sharp declines during October. Nevertheless, Asia continues to drive global economic growth, according to the IMF. Nevertheless, the horizon is clouded by mounting risks, including trade tensions, tighter global financial conditions, and a slowdown in China’s economic growth. 

  • South Korea’s economic growth slowed in Q3
  • Non-mining business investment will underpin growth in Australia
  • Japan said it would welcome the UK into the TPP post-Brexit

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Asia continues to drive global economic growth, according to the International Monetary Fund (IMF) . Nevertheless, the horizon is clouded by mounting risks, including trade tensions, tighter global financial conditions, and a slowdown in China’s economic growth. The IMF downgraded its forecast for economic growth in Japan this year from 1.2% to 1.1%, and in South Korea from 3% to 2.8%. In contrast, the outlook for Australia improved, and the IMF upgraded its prediction for growth in Australia in 2018 from 3% to 3.2%.

“Confidence amongst large Japanese manufacturers fell for a third consecutive quarter”

Asian equity markets generally posted sharp declines during October. In Japan, the Nikkei 225 Index  dropped by 10.1% while the Topix Index  fell by 9.4% and the TSE Second Section Index  declined by a relatively muted 4.5%. Confidence amongst large Japanese manufacturers  fell for a third consecutive quarter during the third quarter of 2018, according to the Bank of Japan’s (BoJ’s) quarterly Tankan survey. Elsewhere, in an interview in the Financial Times, Japan’s Prime Minister Shinzo Abe  said that Japan would welcome the UK into the Trans-Pacific Partnership (TPP) after Brexit with “open arms”, but urged both sides to avoid a no-deal Brexit.

The Reserve Bank of Australia (RBA)  maintained its key interest rate at 1.5% at policymakers’ October meeting. The RBA last changed its interest rate in August 2016 . The central bank expects Australia’s economic expansion to average “a bit above 3 per cent in 2018 and 2019”. Growth is likely to be underpinned by positive business conditions and increasing investment in non-mining business investment, although a question-mark remains over prospects for household consumption. RBA Governor Philip Lowe acknowledged that US’s international trade policy continued to generate “ongoing uncertainty” for the global outlook. The ASX All Ordinaries Index  fell by 6.5% during October.

Having grown at an annualised rate of 2.8% in the first and second quarters of 2018, South Korea’s economy  expanded by only 2% during the third quarter. The Bank of Korea (BoK)  highlighted downside risks including the possibility of a slowdown in exports, tightening monetary conditions in major economies, and a slower-than-anticipated improvement in labour market conditions. The central bank expects South Korea’s economy to expand by only 2.7% in 2018 as the trade dispute between the US and China continues to bite. In comparison, the country’s economy grew by 3.1% in 2017. Over October, the Kospi Index  dropped by 13.4%.


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