Dollar credit crunch in Asia: Australia, Malaysia and Indonesia most squeezed

• The global earning contraction is here as the world is on extended sick leave to contain the virus. In the process, it puts a halt to all non-essential activities, crashing output. Given that the dollar is a lubricant of the global economy, the contraction of balance sheets, either via capital outflows or income squeeze, is tightening USD liquidity globally.  
• In this report, we look into how USD liquidity squeeze can spillover, in terms of credit shocks. To assess the degree of vulnerability across Asia-Pacific economies, we look into: a) their dependency on portfolio flows and the size of their dollar debt; b) their dependence on foreign income. We measure the latter through different means, such as the share of (i) commodity exports, (ii) exports of intermediate goods, i.e., integration in the global value chain, (iii) export of services such as tourism; (iv) and remittances. Beyond the degree of exposure, it is also important to know “how big is the door to the exit”, in other words, how deep each country’s FX market is.
• The results of our rankings are as followed: for foreign capital flows, Indonesia is worst and Australia second. For foreign income dependency, Malaysia is worst due to high commodity, tourism and also intermediate exposures, although Thailand is not too far behind due to the sheer size of tourism dependency.
• Taking into account depth of market - a measures of percentage shares of average daily turnover and FX market, the most exposed to the dollar credit crunch are Australia, Malaysia and Indonesia, respectively. Meanwhile, Taiwan, China and Japan more resilient, although still affected. 

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