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"Risk-off" start for investors in Asia in 2014

The Year of the Horse got off to a "risk-off" start for investors in Asia. In China, growth in both the manufacturing and services sectors are slowing.

SINGAPORE: The Year of the Horse got off to a "risk-off" start for investors in Asia.

In China, growth in both the manufacturing and services sectors are slowing.

Lacklustre export numbers out of South Korea worsened the blow, and sent the regional benchmark receding to a five-month low.

Many are pointing the finger at the US Federal Reserve's decision to lop another US$10 billion off its quantitative easing programme, but others argue that the tapering was merely the trigger of a long overdue cyclical market reversal.

Mikio Kumada, global strategist at LGT Capital Partners, said: "I think in Asia and in the emerging markets, we've seen a 10-15 year boom, and a period of outperformance, and that period basically has reversed a few years ago.

"And maybe it's now getting to a point where it's slightly exaggerated going forward -- but you know, markets tend to exaggerate both ways of the cycle, on the upcycle and the downcycle."

Economists said that could mean more volatility ahead, especially with more signs of China's deepening slowdown.

Glenn Maguire, chief economist for Asia Pacific at ANZ Economic Research, said: "The reforms that have been put in place in China, the tightening of the interbank liquidity to try and squeeze the deleveraging dynamic in the banking sector -- these are all developments which do suggest the economic data will be slowing.

“We think we'll probably see a little firmer data around March or April, but generally the trend will be to softer data."

Investors yanked some US$9b from emerging stock and bond funds in the last week, with equities seeing the worst outflow in 2.5 years.

And the misery may be prolonged.

Goldman Sachs said real interest rates in emerging economies are simply too low to make the risk worthwhile for investors. 

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