One piece of economic news went relatively unnoticed in the lead-up to the Fed’s December rate-hike decision: South Korea’s central bank, the Bank of Korea—often considered a bellwether of interest rates in Asia—had already raised its benchmark rate at the end of November.
It is worth remembering that these five economies together account for 27% of world GDP. Japan, China and South Korea on their own are 23%.
Yes, but because inflation rates in Asia are subdued, interest rates will not have to rise very quickly. One exception might be China, where there is potential for inflation to pick up quickly in 2018. In part this is due to cutbacks in production capacity, but it also results from credit growth in earlier period due to stimulus. Investors will want to keep an eye on this as the year unfolds, as a potential global risk factor. Note also that Hong Kong is on the same tightening cycle as the U.S.
However, interest rate rises are an indicator of economic buoyancy, and this looks set to continue, albeit with some deceleration in China from mid-year onwards. Growth will continue in Asia for a while yet, at much higher levels than seen in Europe and North America, and this will drive the region’s real estate markets.