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Indonesia, Thailand Add to Emerging Market Worries

Thailand is also characterized by high levels of private debt, which has increased by 12% when compared to last year. Household debt in Thailand now makes up 80% of GDP, which is one of the highest ratios in Asia and this is a marked increase from the 55% figure that was seen in early 2009.

Some of the biggest concerns will be realized if Federal Reserve tapering continues to limit U.S. demand for emerging markets exports. Policy change speculation has caused long-term interest rates to move higher, with yields on the 10-year Treasury note hitting a two-year high near 2.9%. This ultimately attracts investment capital back into U.S. assets, and exacerbates current account problems seen in emerging markets.

After the 2008 financial crisis, lower interest rates meant it was easier for Asian economies to attract investment and boost prospects for growth. But with the economic imbalances created by growing debt levels, investors need better potential for returns in order to justify the added risk.

But when we look at the performance seen in Asia's individual economies, internal factors look even more discouraging. Whether or not emerging Asia's financial stability will continue to erode will depend largely on the region's ability to calm investor fears and attract foreign investment.

Less external debt and stronger foreign reserves means nobody is really expecting Asia's economic situation to deteriorate to the level of alarm seen during the 1998 financial crisis. But the balance of the evidence ultimately suggests we have yet to see a bottom in emerging Asia's stock markets.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Cox is based in China, and has lectured at several universities there on international trade and finance, focusing primarily on macroeconomics and price behavior in equity markets. His articles appear on a variety of Web sites, including, Seeking Alpha, FX Street and others. Investing strategies are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies, and commodities). Trade ideas are generally based on time horizons of one to six months.
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