Geopolitical risks threaten Asia’s stability

Geopolitical tensions remain the chief concern that may affect economies in Asia Pacific, a new investor survey showed, highlighting the need for policymakers to stay calm and keep nationalist tendencies from flaring up.

International debt watcher Fitch Ratings said the effectiveness of Japan’s economic stimulus, dubbed as Abenomics, was also still in question as Asia’s second largest economy tried to cement recent gains.

“Geopolitical risk was seen as a high risk to credit markets,” Fitch said in announcing the results of its Asia Pacific investor survey for November.

Four out of five or 79 percent of respondents cited geopolitical tensions as the main threat to the region’s stability, up from just 15 percent in the previous survey in August 2013.

Investor concerns over high-profile global sources of risk such as the protracted crises in Ukraine, Iraq and Syria, rather than regional Asian issues may have driven the results. In Asia, inter-state tensions in the South China Sea, disputes between China and Japan, and between North and South Korea remained in the background in 2014. However, domestic political risks were highlighted in Thailand following the military takeover of the government in May, and by the outbreak of pro-democracy protests in Hong Kong.

The Philippines is currently embroiled in its own territorial dispute with China. Beijing claims nearly all of the South China Sea, including waters near Southeast Asian countries like the Philippines, Malaysia, Brunei and Vietnam.

Fitch said the survey’s results mirror findings of the latest European survey, where 85 percent of respondents cited geopolitics as the biggest risk to economic stability.

Amid heightened risk aversion, Fitch said debt spreads in the region have come under pressure as investors demand higher returns for emerging market assets.

Apart from geopolitical concerns, Japan’s shaky economic recovery was also a source of concern for investors. About 70 percent of investors “do not expect Abenomics to succeed in returning Japan’s economy to a sustainable higher growth path.”

“Just over one-fifth of respondents even fear the policy will do more harm than good by causing disruptive repricing in the government bond market,” Fitch said.

The credit rating firm said it still thinks Abenomics has the potential to lead Japan onto a stronger trend nominal and real gross domestic product (GDP) growth trajectory. However, the Bank of Japan’s aggressive easing underscores the challenges the authorities face in getting the economy onto a path of sustainably stronger real and nominal GDP growth via the strategy of Abenomics.