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Pimco Says External Growth May Lift ‘Not Stellar’ Asia

Guangzhou's Central Business District
Women take photographs with mobile devices during the Guangzhou International Light Festival in the Zhujiang New Town district of Guangzhou. Countries from China to India and Indonesia are struggling to rebalance their economies as investors refocus on developed markets ahead of expected cuts to record U.S. stimulus. Photographer: Brent Lewin/Bloomberg

Asian growth matching the slowest since 2009 this year may receive a boost in 2014 as developed markets from the U.S. to Europe accelerate, according to Pacific Investment Management Co., the world’s largest manager of bond funds.

Four of Asia’s five largest economies outside Japan are slowing as regional expansion stalls at 6.23 percent for a second year, economist forecasts compiled by Bloomberg show. Shipments from China to the U.S. are poised to increase at the slowest pace since 2008 this year, according to China’s Customs General Administration, while so-called G10-currency markets are on track to grow a combined 1.96 percent in 2014, the most since 2010.

“Asia’s trajectory will continue to be shaped critically by the growth path in the U.S. and Europe,” Ramin Toloui, the Singapore-based global co-head of emerging markets portfolio management at Pimco, wrote in a report published today. “The upshot is an Asian outlook in which growth is stabilizing but not stellar. Prospects for an improved external environment offer the possibility of support on the upside.”

Countries from China to India and Indonesia are struggling to rebalance their economies as investors refocus on developed markets ahead of expected cuts to record U.S. stimulus. Investors pulled more than $1.6 billion from both emerging-markets equity and bond funds in the week to Dec. 11, according to data provider EPFR Global. The Federal Reserve, whose two-day meeting ends today, may start tapering its $85 billion-a-month of bond purchases this month, 34 percent of analysts surveyed by Bloomberg News predict.

China, Australia

While India and Indonesia are tackling fiscal and current account deficits, China is trying to reduce its reliance on exports and investment as it endures the longest streak of sub-8 percent growth in at least two decades. The nation, which set a 7.5 percent annual growth target this year, will try to expand at a rate that improves the quality and efficiency of development, according to a statement from the annual Central Economic Work Conference which ended last week.

“Growth in the next decade requires a rebalancing of the economy toward household demand,” Toloui said in the report. “In the near term, China’s economic performance will be dominated by the dialing back and forth of the credit conditions by policymakers.”

The yield on China’s benchmark 10-year bonds soared to 4.72 percent last month, the most in data going back to 2007, as authorities acted to cool credit growth. The seven-day repurchase rate, a gauge of funding availability in the banking system, averaged 4.02 percent this year, up from 3.5 percent in 2012.

Slowdown Downunder

Australia is also suffering from China’s slowing economy as its demand for natural resources wanes. Limited evidence of any non-mining investment, except in the housing sector, means Australia’s growth outlook is weak, Robert Mead, a Sydney-based portfolio manager at Pimco wrote in the same report.

Recently announced cuts to the manufacturing sector will also drag down growth in the next few years, Mead wrote. General Motors Co.’s Holden unit, the nation’s largest carmaker, said last week it would shut production lines in 2017 after 69 years.

Carmakers have been hit by the Australian dollar surging almost 50 percent against the U.S. dollar from 2009 to 2012, making exports uncompetitive. The currency, which has weakened 14 percent this year, is likely to depreciate further, according to Mead.

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