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Current risk aversion may thus temper investment growth in region, says S&P[SINGAPORE] Changes in global financial risk appetite matter more to investment outcomes in Asia-Pacific than changes in real external demand, says Standard & Poor's (S&P) Ratings Services in its latest report.迷你倉This suggests that despite the expected improvement in global growth prospects, the current bout of global risk aversion may temper investment growth in this region.The report, Investment Drivers In Asia-Pacific: Global Financial Risk Appetite May Matter More Than External Demand, released yesterday, looked beyond its previous analytical framework of growth betas, which measure the sensitivity of overall economic growth in Asia's emerging economies to global growth."The growth beta framework has two limitations," the report said. "First, although an economy's overall GDP growth may not be very sensitive to global economic developments, some of its components, such as consumption or investment, might be. Second, apart from the effects of external developments in the real sector, Asia-Pacific growth is also subject to financial shocks, which growth betas neglect by construction."That is not to say growth betas are not useful. S&P found that growth in the more export-dependent, newly industrialised economies - such as South Korea, Taiwan, Hong Kong and Singapore - tend to have a high beta to global growth. Their growth tends to suffer when global economic activity slows, given the dominance of high value-added consumer and capital goods in their production base, which are in highest demand in the advanced economies.In contrast, "low-beta" economies - the South-east Asian economies, particularly the Philippines and Indonesia - are relatively resilient. These economies have a large young labour force and rising incomes, which help fuel domestic consumption. They also have a renewed push to further private and public investment. These two factors allow these economies to grow at reasonable rmini storagetes despite global economic shocks, S&P said.But the ratings agency wanted to go beyond this; it addressed some of the gaps in the growth beta framework by focusing on the response of domestic investment to external factors.It used the well-known Chicago Board Options Exchange Market Volatility Index (VIX). VIX represents market expectations of stockmarket volatility over the coming month, and can be a good gauge of investor sentiment; a higher VIX indicates more market stress and vice versa.To investigate even further, S&P also used a vector regression, a common statistical model, that took into account feedback loops and dynamic effects ignored in its VIX analyses.It found that changes in global risk appetite matter more for Asia-Pacific's real investment than external demand. S&P said investment outcomes responded negatively to the VIX in all the Asia-Pacific economies in its sample, except Indonesia, Singapore and Taiwan. The impact was persistent in most cases, with a shock to risk appetite still hindering cyclical investment a few quarters later. In contrast, it found that exports significantly affected investment only in Indonesia, Japan, Korea and Singapore.It found that domestic interest rates had a negligible effect on cyclical investment, except in Indonesia, which contrasts with the usual view of monetary policy.The sensitivities of investment to external financing diverge from the growth betas, S&P said. The significant dampening effect of global risk aversion on investment was true for high-beta economies, such as Korea and Hong Kong, as well as low-beta economies, such as India and the Philippines.In conclusion, S&P said: "For Asia-Pacific, the light at the end of the tunnel seems to be closer in terms of the growth shock. However, even if our expected uptick in global economic momentum does materialise, the results of our analysis suggest that financial market volatility still has the potential to derail or dampen investment recovery in Asia-Pacific."self storage