Asia is vulnerable - Nomura

Analysts at Nomura explained that there has been a significant market re-pricing of Fed rate hikes for this year, with one now expected in the coming months.

Key Quotes:

"However, EMs seem to have taken this in their stride, as the common retort is that stronger US data will translate into stronger EM exports. But we are sceptical, particularly for Asia, for two main reasons. 

First, China has become a larger export market than the US for most Asian countries, even after allowing for its (diminishing) assembly role. And on our count, 15 of the last 19 economic indicators for China have weakened, signalling that growth is rolling over. A renewed China slowdown should affect EM overall and, as the chart shows, most of Asian exports now go to countries outside the US, EU and Japan. 

Second, Asia has become burdened with high debt, and so is more vulnerable to Fed rate hikes than in the past. The high leverage in China is well known, but the IMF recently estimated that 18.8% of corporate debt in Asia excluding Japan and China is at risk, with earnings unable to cover interest payments."