The rise of realism in emerging Asia

At Standard Chartered, we agree that monetary policy changes in the US are critical. By our estimates, they are twice as important for global liquidity as the next most important central bank, the European Central Bank, which is twice as important as the next central bank, the Bank of Japan, which in turn has twice the impact of the People's Bank of China.

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At this point, however, unless inflation comes roaring back in the US, driven by a surge in credit growth - unlikely in our view - there is not a lot more left to be priced in for US rate-hike expectations. For this reason, we believe the stresses in emerging Asia should be less pronounced than in 2013. A key factor will be the timing of the rise in short-term interest rates - something more likely to be an issue in 2015 than in 2014.

While it is true that money is no longer flooding into emerging Asia indiscriminately, this does not mean that the structural story is over. In fact, clearer market signals will now be given to policymakers across the region that good policy - driven by growth-enhancing reforms - will be rewarded, and that complacency will not. In other words, the fact that we are coming out of the phase of indiscriminate inflows is a good, cyclical adjustment, not a cause for panic.

Current account balances, the net value of a country's trade in goods and services with the rest of the world, should also start to stabilize in 2014, and this is another landmark point. We do not foresee major problems for emerging Asia this year because no country is likely to see a dramatic increase in inflation and few economies are afflicted with current account deficits. In aggregate, we expect a rise in emerging Asia's current account balance over 2014.

The three economies in emerging Asia with current account deficits - India, Indonesia and Thailand - all happen to be holding elections this year. In Thailand, the outlook is unclear, and the longer the policy paralysis goes on, the less likely it is that growth targets can be achieved. In India, coalition politics is the reality, and we will be watching closely to see how the reform agenda is prioritized after the elections. And Indonesia has already demonstrated its ability to go through the political cycle without disrupting the sound economic policies that have been in place since the post-crisis reforms of the early 2000s.

The author is regional head of research for Asia at Standard Chartered Bank.