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Asian economies’ moment in sun ending

Asia’s role as the world’s growth engine is waning as economies across the region weaken and investors pull out billions of dollars.

The Indian rupee fell to a record low in mid-August. Thailand is in recession. And Indonesia’s widest current-account deficit pushed the rupiah to the lowest level since 2009.

Chinese banks’ bad loans are rising, and economists forecast Malaysia was expected to post a second straight quarter of sub-5 percent growth last week.

The clouds forming in Asia as liquidity tightens and China’s slowdown curbs demand for commodities and goods are fueling a sell-off of emerging-market stocks, reversing a flow of money into the region in favor of nascent recoveries in the U.S. and Europe.

Emerging markets from Brazil to Indonesia have raised borrowing costs this year to try to aid their currencies as the prospect of reduced U.S. monetary stimulus curbs demand for assets in developing nations.

“The eye of the storm is directly above emerging markets now, two years after it hovered over Europe and four years after it hit the U.S.,” said Stephen Jen, co-founder of hedge fund SLJ Macro Partners LLP in London and former head of foreign-exchange strategy at Morgan Stanley. “This could be serious for Asia.”

Almost $95 billion was poured into exchange-traded funds of American shares this year, while developing-nation ETFs saw withdrawals of $8.4 billion, according to data compiled by Bloomberg. Signs of a stronger U.S. economy may prompt the Federal Reserve to begin paring its $85 billion in monthly bond purchases as soon as next month.

“The pendulum is swinging back in favor of the advanced countries,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which oversees about $130 billion.

“It’s one of these things that happens once a decade or so when you see a turn in relative performance. We’ve entered a tougher, more difficult period” for Asia.

In the past three months, the MSCI Asia Pacific Index has fallen 7.4 percent, compared with a 0.7 percent decline in the Standard & Poor’s 500 Index and a 0.8 percent drop in the Stoxx Europe 600 Index up to the close last week.

Taiwan last week cut its 2013 growth and exports forecasts and said the global outlook for the second half is worse than in May.

“We are seeing a turning point,” said Freya Beamish, an economist in Hong Kong with Lombard Street Research, who says China’s competitiveness has been hurt by labor costs that are 30 percent too high. “China’s seeing flat to falling growth on our estimates so the region’s clouds are already here.”

Richard Jerram, chief economist at Bank of Singapore Ltd., says the market declines reflect overly ambitious expectations rather than fundamental weakness in the economies.

“There’s a good structural story based on the underlying domestic demand,” said Jerram, who has analyzed Asian economies for two decades.

“What you see at the moment is reaction from expectations being unrealistically positive maybe 12 months ago, to now becoming more realistic.”

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