By Claire Milhench
LONDON (Reuters) - Big energy importers in emerging markets were expected to benefit from plunging oil prices, but with China's growth slowing and their exports dwindling, only a handful have been able to capitalise on cheaper fuel.
Investor disappointment is evident in a broad emerging market rout - Turkish and Indonesian stocks are down around 30 percent in dollar terms this year.
"It's a source of disappointment that we haven't seen the full impact of lower commodity prices," said Yacov Arnopolin, portfolio manager at Goldman Sachs Asset Management.
Initial signs were more encouraging. Last December, the International Monetary Fund predicted that cheaper oil would boost global growth as much as 0.7 percentage points in 2015.
Investors also welcomed moves by importers India and Indonesia to cut fuel subsidies after oil prices fell by more than half from the $115 a barrel they hit last June. The hope was that the money saved would be invested in infrastructure, fuelling stronger growth.
In countries without fuel subsidies, motorists were expected to get a boost to real incomes, spurring consumer spending.
Investors have been disappointed on both counts.
"The fall in oil prices hasn't helped the consumer as much as we thought - a lot of it has gone into savings," said Grant Webster, a portfolio manager at Investec Asset Management.
Partly this is to do with record levels of household debt, which has knocked private consumption in countries like Thailand. In Taiwan and China, volatile stock markets and cooling property prices have made households wary of spending.
"The decline in oil prices is playing out in conjunction with a loss of wealth from the equity and housing markets," said Aidan Yao, senior emerging Asia economist at Axa Investment Managers Asia. "So even though there's a bit of a windfall from lower energy costs, the asset part of your balance sheet is shrinking."
Weaker emerging market currencies have also offset some of the benefits to consumers, Webster said (see graphic).
CHINA SLOWDOWN
So why has the hoped for stimulus proved so underwhelming?
For Asia's manufacturing powerhouses, the problem lies with China, where slowing growth is leading to a general dip in global and intra-EM trade.
From Korean cars to Taiwanese semiconductors, emerging market exports are declining year-on-year at the sharpest rate since 2008-09, according to UBS. South Korea, Taiwan and Philippines have posted several months of dwindling overseas sales.
In other words, falling exports are offsetting lower import bills, pushing growth to the slowest in years.
"If this was a stronger growth environment you would see more of an impact (from oil), but with low trade and weak demand, it doesn't pass through as quickly," Webster said.
Broadly, oil importers have seen some improvements in current account deficits. But for various reasons, they have fallen short of expectations, and Brazil's position has actually deteriorated (see graphic).
Turkey's too-loose monetary policy is blamed for its stubbornly large funding gap. Political tensions before November elections are deterring foreign investors, as well.
In South Africa, where oil comprises a quarter of imports, the deficit stands at 3.1 percent of GDP versus around 6 percent in 2013. But China's slowdown has put pressure on the prices of its main exports - precious metals, coal and iron ore.
SOME BRIGHT SPOTS
There are some bright spots, such as Central Europe, where trade ties to China are minimal and fuel accounts for a big chunk of spending.
There consumer demand is picking up, rising between 2.5 percent and 5 percent in the second quarter. Every country in the region now runs an external surplus - Hungary's is 9 percent of GDP.
Of the biggest oil consumers, India has fared relatively well. Inflation is slowing and the current account gap stands at 1.2 percent, versus around 4 percent in 2013.
But investor optimism is fading. Prime Minister Narendra Modi, elected on a pro-business agenda, is finding it difficult to push through reforms. Indonesian president Joko Widodo has also struggled to fulfil election pledges to overhaul the economy.
Indian stocks are down 7 percent this year, after rising more than 30 percent last year. Indonesian equities have fallen 30 percent and the currency is at 17-year lows.
"A lot of investors got a bit too optimistic early on - it will take three or four years before it will have a material impact on growth," said Alex Wolf, emerging markets economist at Standard Life Investments.
"There is always a lag, even when everything else is constant, but the global environment is such that that lag could be extended," added Jose Morales, chief investment officer of Mirae Asset Global Investments (USA).
(Reporting by Claire Milhench, editing by Larry King)
