Per a CNBC article published in 2022, the world economy could fall into conditions that were seen during the 1997 Asian Financial Crisis, thanks to aggressive interest rate hikes and a soaring dollar in the United States. But the Asian financial crisis seen in 1997 is unlikely to be repeated.

The last time the United States pushed up interest rates in such a super-hawkish manner in the 1990s, capital flew from emerging Asia into the United States. The Thai baht and other Asian currencies shattered, causing the Asian Financial Crisis.

But this year, the situation has changed, and Asia’s growth will beat both the United States and Europe, per Morgan Stanley, as quoted on CNBC. Asia, including Japan, will likely outperform the United States and Europe thanks to stronger domestic demand. China’s economic reopening and easy money as well as fiscal policy, are likely to be of great support. Three other large Asian economies — India, Indonesia and Japan — have also been recording solid domestic demand.

Notably, China’s GDP grew 4.5% in the first quarter of 2023, China’s National Bureau of Statistics. That represented the highest growth since the first quarter of last year — when China’s economy had advanced by 4.8% — and better than the 4% forecast in a Reuters poll. On a sequential basis, the economy grew 2.2%.

China’s economy is likely to see another spell of improvement from government stimulus later in the year, NF Trinity’s managing director Helen Zhu told CNBC’s “Street Signs Asia” shortly after the data release, as quoted on CNBC. IMF projects Asia will make up more than 70% of global growth this year as its expansion accelerates to 4.6% from 3.8% last year.

This time, emerging Asian markets are better positioned to survive pressures on foreign exchange rates, analysts said, as quoted on CNBC last year. As there are fewer foreign holdings of local assets in Asia now, any capital flights would exert less financial pressure this time around, said UBS Global Wealth Management executive director for Asia-Pacific FX and macro strategist.

Disinflation in Emerging Markets?

A Bloomberg article published in early 2022 pointed out that the projected inflation for a cross-section of developing nations will average 4.74% from 2026 to 2031 versus an average of 5.25% over the past five years, according to the analysis. This is a disinflationary situation. Investors should note that disinflation is the fall in the rate of inflation.

Some Asia Countries Running Current Account Surpluses

Lesser current account deficits or even surpluses for some Asian economies should underpin those Asian’s countries’ domestic currencies even in the face of a stronger dollar. Thailand’s Current Account returned to surplus in September 2022. China’s current account surplus jumped in 2022, thanks to the nation’s strength in exports and a decline in demand for imports.

Indonesia recorded a 2022 current account surplus on the commodity boom. Vietnam recorded a Current Account deficit of 0.90% of the country's GDP in 2022 versus 2.1% of the country's Nominal GDP in Dec 2021. Against this backdrop, U.S. current account deficit was equivalent to 3.7% of the GDP in 2022.

ETFs in Focus

Against this backdrop, below, we highlight a few Asian EM ETFs that clearly outperformed or matched the S&P 500 (up 7.4%) in the past month (as of Apr 18, 2023).

KraneShares CICC China 5G & Semiconductor Index ETF (KFVG Quick QuoteKFVG - Free Report) – Up 13.2%

Global X MSCI China Real Estate ETF – Up 11.8%

KraneShares SSE Star Market 50 Index ETF (KSTR Quick QuoteKSTR - Free Report) – Up 10.3%

Global X MSCI China Communication Services ETF – Up 9.4%

iShares MSCI Indonesia ETF (EIDO Quick QuoteEIDO - Free Report) – Up 9.3%

Nifty India Financials ETF (INDF Quick QuoteINDF - Free Report) – Up 7.2%