Emerging Asia weakness may have hit bottom

Shoppers walk in the Myungdong shopping district in Seoul, South Korea.
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Shoppers walk in the Myungdong shopping district in Seoul, South Korea.

Economic growth in emerging Asian countries, which have slowed sharply since the start of the year, may have bottomed out with signs of a turnaround under way, economists say.

Research firm Capital Economics said growth in emerging Asian economies picked up slightly in May and there are signs of a gradual recovery in the region such as net capital inflows into stocks rising $386.6 million so far this month compared with a net outflow of almost $15 billion in June.

"Our GDP [gross domestic product] tracker suggests that although regional growth remains weak, it may have turned a corner in May," Gareth Leather, emerging markets economist at Capital Economics said in a note published this week.

Gross domestic product (GDP) data for the second quarter from South Korea and Singapore for instance paint a brighter economic outlook for the two Asian countries.

Data on Thursday showed South Korea's economy grew 1.1 percent in the second quarter of the year from the previous one, its quickest quarterly pace of growth in over two years.

(Read more: South Korea second quarter GDP tops expectations)

Singapore's economy, meanwhile, grew 15.2 percent in the second quarter from the first, according to an advance estimate - marking the strongest quarterly expansion since 2011, data showed two weeks ago.

Raymond Yeung, senior economist at ANZ said South Korea's economy has bottomed and growth prospects are set to improve further in the second half.

"The second quarter release is encouraging. Domestic consumption has turned around, suggesting that the concerted efforts by both the government stimulus package and the central bank's rate cut in May have started to contribute," Yeung said in a note after the GDP data came out on Thursday.

The Bank of Korea cut rates 25 basis points to 2.5 percent in May, while the government unveiled $4.7 billion in stimulus spending plans in April in a bid to shore up flagging economic growth.

(Read more: Emerging Market Growth Hits Lowest Since Financial Crisis)

With a number of economies due to report GDP figures over the coming few weeks, Capital Economics said, they expect the economic data to show a brighter outlook for the region, which has been hurt by a slowdown in China and weak demand from Europe.

"On the whole, we expect growth to have remained relatively strong in Southeast Asia, but for growth elsewhere to have stayed subdued," Capital Economics said.

Average growth in emerging markets including those in Asia slowed to annual rate of 4 percent in the first quarter, its weakest pace since the global financial crisis, according to data from Capital Economics. In comparison, emerging market economies grew on average by an annual 6.4 percent during the past decade

(Read more: South Korea Q2 growth hits 2-year high, but China risks cloud outlook)

According to Capital Economics, one thing that bodes well for the outlook for emerging market economies in Asia are signs of a recovery in capital inflows.

"After falling sharply in June, net flows of capital into Asia's equity markets have been positive so far in July," Leather at Capital Economics said.

Benchmark indices are up on average around 6 percent in July across Asia excluding Japan, following steep falls in May and June amid fears of the U.S Federal Reserve tapering its quantitative easing program.

The Fed's monetary stimulus program has pumped liquidity into global financial markets in recent years and emerging markets have been a big beneficiary of the extra money looking for a home.

—By CNBC.com's Rajeshni Naidu-Ghelani; Follow her onTwitter @RajeshniNaidu