Data shows Asia’s slow climb out of recession

HONG KONG: China yesterday reported a batch of solid economic data for July, two major Asian central banks kept interest rates unchanged and business confidence rose to a two-year high in Australia – all news that showed the region is continuing its slow and onerous climb out of recession.

China has withstood the global economic turmoil better than most other countries, thanks to aggressive stimulus measures announced by Beijing last year, and in recent months it has frequently surprised even optimistic economic analysts with buoyant investment, spending and production data.

Data for July, released yesterday, showed industrial output, a key measure of wider economic growth, rose 10.8 per cent from a year earlier, at a slightly higher pace than in June. Retail sales rose 15.2 per cent.

Trade data published separately showed exports in July dropped 23 per cent from a year earlier, a slightly smaller decline than economists had expected.

The data cemented the view that the China’s giant economy is ploughing ahead steadily as government spending and a massive increase in lending by state-controlled banks during the first half of this year helped offset the negative fallout from collapsing demand for Chinese-made products in the United States and in Europe.

Reflecting growing optimism that the government’s tremendous leeway to stimulate growth has put China on a path to solid recovery, economists at Goldman Sachs on Monday raised their forecast for the country’s full-year growth this year to 9.4 per cent. This is up from the 8.3 per cent they had previously projected, and higher than the government’s target of 8 per cent. For 2010, the Goldman Sachs economists expect the Chinese economy to expand 11.9 per cent.

However, the pace of growth – and of exports in particular – remains significantly below where it was before the global economic crisis began to hit export- dependent Asia late last year.

China’s industry and retail data released yesterday, while good, was slightly lower than most economists had projected, and underlined that the economy remains hugely dependent on government spending programmes and bank lending to sustain growth. And the export decline was the ninth such fall in a row, showing that depressed exports are likely to remain a major drag on the economy for some time to come.

At the same time, a spike in stock markets and property prices in China has led many to worry that another bubble is in the making. The authorities now face the challenging balancing act of scaling back the pace of bank lending in a bid to deflate price spikes – but doing so without choking off economic growth.

Chinese stocks yesterday rose 0.46 per cent, ending a four-session losing streak, as economists said the country’s economic recovery still appeared intact after mixed economic data for July.

Turnover shrank sharply, however, as sentiment remained cautious after the recent pull-back spurred in part by concerns about tightening market liquidity that were confirmed by a sharp fall in new bank lending data for July.

A drop in new loans, to 356 billion yuan (S$75 billion) in July from 1.53 trillion yuan in June, was largely due to arm-twisting by the central bank, said Mr Paul Cavey, an economist at Macquarie Securities in Hong Kong.

But he said no real monetary tightening was under way because policymakers were waiting for proof of a full recovery.

Elsewhere in the region, the Bank of Japan policy board members voted unanimously to hold interest rates at 0.1 per cent, as widely expected, and South Korea kept its key interest rate unchanged at a record low of 2 per cent for the sixth month in a row as the nascent recovery there takes root.

In Australia, a key measure of business confidence jumped to its highest level in almost two years in July, adding to signs that its economy is rebounding.

NEW YORK TIMES, REUTERS

Source: Straits Times, 12 Aug 2009

Asian recovery looks to be on track: ADB

S’pore growth for 2010 forecast at 3.5%, and the rest of Asean 4.2%

ASIAN economies appear to have turned the corner from the global recession and should be able to double next year the anaemic growth rates they are expected to post in 2009, the Asian Development Bank (ADB) said yesterday. But it warns in its latest Asia Economic Monitor that the road to full recovery is strewn with hazards.

Growth centre: China’s growth is expected to rise to 8 per cent in 2010 from 7 per cent this year
The biggest single threat to continuing recovery identified by ADB report is the danger that recession in the US and Europe, on which Asia relies heavily for export markets, will last longer then generally expected.

Singapore’s GDP growth rate is forecast by the report to reach 3.5 per cent in 2010, after an expected overall contraction of 5 per cent this year. The rest of Asean should recover from marginal growth of 0.7 per cent this year to 4.2 per cent expansion in 2010, ADB says.

China remains the region’s star performer, with growth expected to be maintained at a relatively high 7 per cent this year, rising to 8 per cent in 2010. Japan, on the other hand, is forecast to suffer a 5.8 per cent GDP contraction this year and recover to just 1.1 per cent growth in 2010.

South Korea and Hong Kong are forecast to recover to respective growth rates of 4 and 3 per cent in 2010 after sharp contractions this year, but Taiwan will remain one of the laggards of the region with growth recovering only to 2.4 per cent next year.

Recovery got under way in Asia during the second quarter of this year, the ADB report notes, fed largely by fiscal and monetary stimulus programmes. But while exports are showing some recovery as a result of inventory adjustment, underlying external demand remains weak.

Among the positive signs for Asia are ‘early indicators that the pace (of economic contraction) slowed in the second quarter of 2009′, while balance of payments positions have ‘turned positive’ again, stock markets have rebounded, several currencies have begun appreciating and inflation has eased.

Meanwhile, the region’s banking systems ‘appear capable of weathering the economic storm’, ADB says, ‘with prudential indicators strong and lending continuing to grow’ across much of the region.

Despite these positive indications, the report says: ‘The overall external environment for emerging East Asia remains difficult and uncertain, with the recession in advanced economies continuing and global financial conditions improving (but) still tight.’

Emerging East Asia – which excludes Japan and the newly-industrialised economies (NIEs) of South Korea, Taiwan, Hong Kong and Singapore – ‘could see a V-shaped recovery’, with growth dipping sharply in 2009 before recovering next year to its pace in 2008.

But this scenario could change for the worse if there is a more prolonged recession than forecast in advanced economies, with export demand remaining depressed longer than expected. Premature fiscal or monetary tightening could also damage the prospects for a V-shaped economic recovery in Asia.

And falling inflation could turn into deflation in some economies of the region, says ADB, noting that Singapore and Taiwan, whose economies have contracted most sharply among the NIEs in the current recession, have been ‘experiencing deflation over the past few months’.

Given the tentative nature of the expected recovery, ‘it is critical that authorities stay the course in supporting domestic demand and growth’ through fiscal and monetary stimuli, the ADB report adds.

Source: Business Times, 24 July 2009

China turns in strong growth of 7.9 per cent

BEIJING: China’s economy grew a surprisingly strong 7.9 per cent in the second quarter as it charged ahead of other major economies in the dash out of the global recession.

It looks set to hit its full-year growth target of 8 per cent, fuelling hope that the world economy could also be emerging from its worst crisis in 80 years.

But the government yesterday cautioned against any premature celebration, saying that the surge was unstable and uneven across different sectors and regions in the world’s third-largest economy.

‘Maybe many of you have actually felt and experienced this economic recovery, but some other groups, industries, enterprises have not,’ said Mr Li Xiaochao, a spokesman for the state statistics bureau.

He added there were still a number of uncertainties, pointing in particular to declining external demand, which fell by 21.8 per cent in the first half of the year.

But a string of data from the government showed that the export slump had been offset by an increase in domestic demand, aided by the 4 trillion yuan (S$850 billion) stimulus package announced late last year to combat the crisis.

Mr Li highlighted the strength of China’s car and property markets. In recent months, car showrooms in Beijing have reported brisk sales and long waiting lists for new cars.

But analysts said that the main push behind the growth was investment in infrastructure projects by state-owned companies, backed by record bank lending.

‘We now expect total new lending in 2009 to reach 9 trillion yuan, a speed of re-leveraging unprecedented in China’s history,’ said economist Wang Tao, head of the UBS Securities’ China economic research.

Experts, who had forecast 7.5 per cent growth for the second quarter, have now raised their projections for the full year.

Most are now looking at 8.2-8.5 per cent annual growth, a far cry from just a few months ago, when predictions of 8 per cent were seen as wildly optimistic.

‘China’s recovery is real, strong, and sustainable,’ said Merrill Lynch economist Lu Ting.

The 8 per cent growth target has taken on almost mythical importance in Chinese economics and politics, with the Chinese Communist Party believing that it is the rate of growth required to create jobs and wealth to keep the country stable.

The party has been repeating the ‘Protect 8′ mantra in the past six months, as it looks ahead to the planned massive 60th National Day celebrations on Oct 1.

Major incidents of social unrest have erupted this year, with the July 5 riots in Xinjiang seen as the worst in decades.

The rebound would give the government confidence that the economy has turned a corner, especially after it overtook Japan as the world’s second-largest stock market by value on Wednesday.

The Shanghai Composite Index closed down 0.15 per cent yesterday, after shares stayed in positive territory for most of the day following the announcement of the 7.9 per cent growth.

Source: Straits Times, 17 July 2009

Worst seems to be over for Asia, says Hng Kiang

Minister’s remarks come ahead of Apec meeting

(SINGAPORE) The worst may seem to be over for economies across Asia, but a recovery in trade will be some way off, said Trade and Industry Minister Lim Hng Kiang.

‘We don’t expect trade flows to be restored to previous levels . . . until the later stages,’ he told reporters yesterday, noting that trade tends to contract far more sharply than the general economy in a downturn.

He was speaking ahead of a two-day meeting here next week of Asia-Pacific Economic Cooperation (Apec) trade ministers. The meeting is one of several in the run-up to the main Apec ministerial conference in November which Singapore – as the current chair of the 21-member group – will be hosting.

The Apec trade ministers will review their responses to the economic downturn and see what else can be done to spur recovery. Another key job is to ensure – as far as possible – that protectionism does not rear its head and further impede trade.

It’s ‘very natural’ that domestic pressures to protect local industry and save jobs mount during a downturn, Mr Lim said.

But Apec leaders at their Lima, Peru summit last year had come out strongly against protectionist sentiments, saying that there should be a standstill in measures that effectively thwart trade or investment flows.

‘What we need to do is to shine the spotlight on some of these measures and put peer pressure on one another to abide by our leaders’ exhortations not to succumb to protectionist pressures,’ Mr Lim said.

But there could be ‘grey areas’ – for instance, if calls to ‘buy local’ are mere urgings without any clear discriminatory effect against imported goods.

There has to be a collective will not to embark on tit-for-tat measures, and a political will to resist domestic pressures, he said.

The Apec trade ministers will also focus their minds and efforts to restarting the stalled Doha Round of trade talks. World Trade Organization chief Pascal Lamy will be on hand to update the ministers on developments in this area.

Asked about his view on the US stance on free trade, Mr Lim said that he found, from a visit to Washington in June, that the Obama administration has a ‘very ambitious, very crowded’ domestic agenda, with big-ticket items such as healthcare reforms and energy initiatives, on top of dealing with a crisis.

In such circumstances, ‘how do you sell the trade story?’ Mr Lim said. There isn’t a ‘very natural constituency’ that would rally behind calls to keep the trade borders open, yet the US must keep global free trade on its agenda, he said. ‘This is something we’re watching.’

Not least, the Apec trade ministers convening here next week will also seek to move forward on regional economic integration, which would be one solution towards overcoming the global economic crisis.

Apec has long explored as a long-term goal the prospect of a Free Trade Area of the Asia-Pacific (FTAAP).

Source: Business Times, 16 July 2009

Equity markets have hit bottom: Expert

EQUITY markets have bottomed out and there is growing evidence to support the ‘green shoots theory’ that is gaining momentum, according to BlackRock’s global equities head.

Mr Bob Doll, vice-chairman and chief investment officer of global equities at the investment firm, said yesterday at a media briefing in Singapore that equity markets were up more than 30 per cent since the last low of March 6, when the Standard & Poor’s 500 index dropped to 666 points.

And, there was only ‘at most a 20 per cent chance’ of the S&P falling below that level from now on, he said.

Mr Doll explained there were three factors indicating the latest bear market rally was different from the four previous abortive ones.

First, the current surge has been marked by strong momentum and expanding volume.

Second, more cyclical areas of the market, such as consumer spending and technology, have been outperforming – trends that tend to occur when recoveries begin.

And third, earnings estimates during the other four rallies had continued to come down, whereas they are currently stabilising or moving slightly higher.

Mr Doll said it was, however, premature to call the start of a new bull market.

Over the coming months, he predicted that the United States would outperform Europe and emerging markets would outperform developed ones.

Policy responses to the credit crisis had been stronger and more rapid in the US than in other markets, he noted, with US stocks tending to be less volatile than those in most other markets.

But do not expect a consumption-led recovery, he said, as the US consumer’s savings rate had upped from zero to 5 per cent, and may rise further to 8 or 10 per cent.

‘There is a prospect that we will witness the start of an economic recovery by the end of the year, and that could lead into sub-par, but positive growth in 2010,’ added Mr Doll.

Compared with western economies, he could see ‘particular pockets of strength in Asia’ driven by the Chinese consumer sector, which is being fuelled by the country’s massive stimulus programme.
The property market in Hong Kong is showing signs of stabilisation, thus providing opportunities there, he added.

As for green shoots, Mr Doll cautioned: ‘There is evidence for better things coming. But green shoots mean the majority of what we’re looking at is brown.’

Source: Straits Times, 19 May 2009

S’pore GDP may contract dramatically: report

The most bearish forecast to date says slide could touch 10%

Singapore, Taiwan and Korea are expected to be the worst-hit economies in Asia, a report from CLSA said this week.

Singapore could lose a tenth of its $245 billion economy, while Taiwan is expected to shrink 11 per cent and Korea 7 per cent in 2009, the Hong Kong- based research house said.

The forecast is the most bearish yet issued on the local economy. The Ministry of Trade and Industry last month downgraded its prediction for the year to between -5 per cent and -2 per cent and most private sector forecasts have come within the official range, with Credit Suisse (-5 per cent) and Deutsche Bank (-4.5 per cent) the most pessismistic.

Asianomics economist Jim Walker told Time magazine this month that Singapore and Taiwan could see GDP sink by 5 per cent to 10 per cent.

CLSA argued that key data points have swung in ‘extreme fashion’ in the last quarter of 2008. Based on its newly revised estimates, Singapore could suffer a ‘dramatic halt’ in personal consumption, coupled with double-digit declines in fixed investment and collapsing exports, the house said.

That is despite a record budget deficit and a $20.5 billion ‘Resilience’ package announced by the Singapore government in January. ‘We expect the bulk of the money to be saved,’ CLSA said.

Export volumes in Singapore are seen contracting a fifth in 2009, while collapsing domestic demand will likely mean a similar drop in imports. The MTI said that 2008 non-oil domestic exports fell 7.9 per cent and is expected to fall between 9 and 11 per cent this year.

CLSA said exports here have already dropped a seasonally adjusted 32.1 per cent from its July peak.

Manufacturers in both China and the US are now reducing inventories and this is likely to hurt economies that had expected to benefit from new orders. ‘China’s demand for parts and materials is still shrinking at an accelerating rate,’ CLSA noted.

OCBC economist Selena Ling said the surprise in the present downturn was not the contraction in manufacturing and exports, which have been poor for some time now. ‘What is relatively new is the speed of the drop-off in services growth, which are a huge part of GDP and employment,’ Ms Ling said.

CLSA said Hong Kong’s economy is also expected to contract, but by a less sharp 5 per cent this year. ‘The absence of a highly cyclical manufacturing industry and the absence of a physical property overhang means that Hong Kong will perform ‘better’ than Singapore,’ CLSA said.
Yesterday, Standard & Poor’s economist Subir V Gokarn said in a report that Singapore’s GDP could contract between 4.5 per cent and 5 per cent if the US economy shrinks 3.8 per cent in the worse case.

‘Strong external links, particularly to the US economy, will lead to a sharp contraction in 2009 as external demand slows down rapidly. A fiscal stimulus will help contain the slowdown, but in a limited way,’ he said.

Source: Business Times – 6 Feb 2009

Asian property market volatility expected to continue

Asia property stocks are definitely out of fashion in 2009, but brave contrarian investors may find dabbling in Japanese landlords or Chinese developers could pay off.

Asia property markets are slumping in the same way they did after the 1997-98 financial crisis and probably will not recover until 2010, with home prices in Singapore and Hong Kong forecast to slide 20-25 per cent this year as the global economy weakens.

But a strong rebound in property counters across the region towards the end of 2008, even as developers reported slumps in home sales, suggests investors will buy if they see deep value.

More bad economic news in Asia, such as waning exports, would spark flurries of broad market selloffs, but also give investors with longer-term investment views a chance to hunt for bargains.
‘The market’s divided on whether stock prices will make new lows in 2009, but we expect volatility to continue,’ said Adam Upton, who helps manage the JF Asia Property Fund in Hong Kong.

‘In this environment the fund will look to take advantage of near-term trading opportunities.’ The JF Asia Property Fund is keen to trade volatile Chinese property stocks, but is underweight on Australia and mostly neutral on other markets in the region.

Asian property stocks have risen more than 30 per cent from lows in late 2008. Chinese shares led the way with a 70 per cent surge after Beijing unveiled measures to aid the ailing sector, even though many analysts believe government efforts to build mass-housing will undercut listed developers.

Investment house CLSA is neutral or negative on all Asian property markets but likes Hong Kong property trust Link Reit and some property trusts in Japan, as well as office landlord NTT Urban Development Link Reit has been billed as recession-proof because many retailers in its shopping malls sell necessities ranging from rice to toothpaste, unlike swanky new malls where retailers are struggling as consumers cut spending on expensive items. Tokyo’s office market, seen by some as the last stronghold for property investors in the recession-hit economy, is expected to stay resilient because of a shortage of top-notch buildings.

Even with vacancies creeping up, rents for existing contracts will decline only slightly, and not until 2010, according to CLSA. Landlords reacted slowly to a climb in office values in the last four years and are still able to nudge rents up this year. Asian developers learnt the lessons of overbuilding in the 1997-98 crisis, and only Singapore has a large supply of new office blocks coming onto the market in the next few years.

‘We have less of an issue of supply,’ said Frankie Lee, fund manager with Henderson Global Investor in Singapore. ‘It’s all about demand and whether the growth will pick up later this year, after all the government stimulus take effect.’

Analysts warn investors to steer clear of Hong Kong and Singapore office landlords as both cities will be hit hard by the global trade slowdown and upheaval in financial markets.

Source: Business Times – 28 Jan 2009

Property slump to worsen Asia slowdown

Activity in China, Korea cools fast as force of global financial crisis hits home

Slumping Asian property markets could intensify the region’s economic downturn this year, further undermining consumer and investor confidence and prompting homeowners to tighten spending.

Japan, Hong Kong, Singapore and New Zealand are already in recession, and data yesterday showed activity in regional powerhouses China and South Korea is rapidly cooling as the full force of the global financial crisis hits home.

Goldman Sachs sees economic growth in Asia excluding Japan falling to 4.4 per cent this year from an estimated 6.9 per cent in 2008, but says the risk is to the downside.

‘People are worried about losing their jobs and that the economy will get worse, so they are refraining from making very large investments,’ said Michael Spencer, Deutsche Bank’s Asia economist.

Half the wealth of Malaysia, Singapore, South Korea and India is tied to property, according to CLSA.

In Hong Kong and Singapore, double-digit declines in property prices last year and falling real interest rates have made apartments more affordable, and home prices are forecast to slide another 20-25 per cent this year as the global economy weakens.

Buyers, however, are thin on the ground as investors who lost heavily in Asian stock markets last year have less money to put down for property purchases. Worsening economic data across the region, meanwhile, is also discouraging people from committing to big investments like housing.

As homeowners see the value of their assets being eroded in tandem with the deteriorating economic climate, they become part of a vicious cycle, cutting back on consumption – which needs to grow significantly to offset declining Asian exports – and thereby accelerating the slowdown across the region.

Hong Kong homeowner Maggie Chan fears she will soon be strapped with negative equity on the HK$3 million (S$578,500) two-bedroom apartment she bought eight years ago, owing more on her mortgage than the property will be worth. ‘Property prices are going to go down and that’s making me think a lot more before I spend,’ she said.

As exports and domestic consumption weaken, HSBC forecasts a 0.6 per cent contraction in Asian GDP ex-China and Japan in the first quarter of 2009 from a year earlier, the region’s weakest performance since late 1998 during the Asian financial crisis.

Asia would typically lag a US economic downturn by two to three quarters, but is moving more in sync with the US cycle in this crisis, says Goldman Sachs. That’s partly because the credit crisis is making banks worldwide reluctant to lend, further depressing business activity and property sales.

‘Asian loan-to-deposit ratios are lower now than during the Asian financial crisis,’ said Michael Buchanan, Goldman Sachs’ Asian economist. In Hong Kong, banks are offering 70 per cent mortgages on just 85-90 per cent of the value of a property, says Colliers International.

Receding inflation is enabling Asian policymakers to slash interest rates aggressively but that may not be enough to stimulate demand.

South Korea has introduced measures to support its property market, including easing tax rates on luxury property, but Mr Spencer expects more action may be needed, such as cutting taxes on property transactions and capital gains.

In China, capital gains tax exemptions and reduced down-payment requirements, together with hefty discounts by developers, have boosted property sales though they are still well down on a year ago and supply overhang persists in cities like Beijing and Shenzhen, analysts say.

Source: Business Times – 23 Jan 2009

Asia ‘may recover in 2nd quarter’

Bold policies, fall in commodity prices will spur quick rebound, says HSBC

THE latest in what has been a stream of predictions about how Asia might come out of the recession suggests that recovery might kick in as early as the second quarter of this year.

HSBC told a media conference yesterday that massive policy responses and a steep plunge in commodity prices should fuel the rebound.

That would mean a V-shaped recovery in which the economy bottoms out and rallies quickly, but it would not be as fast as the recovery from previous crises.

The bank pointed to rounds of aggressive interest rate cuts and substantial stimulus packages in the region, which should spur domestic demand.

‘The cavalry is on its way in the form of the most significant policy response ever,’ said senior Asian economist Robert Prior-Wandesforde. ‘The policy easing and sharp falls in commodity prices should lead to stronger domestic demand, thus generating recovery in Asia.’

This could take place in the next few months. But HSBC cautioned: ‘Deep and sharp V-shaped recoveries have been the hallmark of Asia in the past, but we suspect that this time around, the second upward leg will not be quite as steep.’

Last week, BNP Paribas forecast a ‘V-shaped’ recovery in Asia next year as the massive policy responses kick in.

Professor Danny Quah, head of economics at the London School of Economics and Political Science, who gave a lecture on Modern China organised by the National University of Singapore’s East Asian Institute yesterday, said East Asia is now in a stronger position than during the Asian financial crisis.

Analysts also noted that the sharp correction in commodity prices, most notably oil, will also benefit the region as Asia is more of an oil importer than exporter.

In an earlier report, Morgan Stanley analysts said a US$55 fall in the price of crude oil is like a US$385 billion (S$572 billion) tax cut for Asian consumers, equal to about 5 per cent of the region’s total gross domestic product. Oil was trading at around US$70 a barrel at the time. It is now trading at US$38.

There could also be light at the end of the tunnel for Singapore next year. HSBC expects the economy to shrink 2.8 per cent this year – below the Government’s forecast of between -2 and 1 per cent – before surging 5.5 per cent next year. Lower inflation, thanks to falling commodity prices, a supportive policy environment with expected fiscal easing and improving regional trade are set to fuel recovery.

It noted: ‘While the next six months are going to be very challenging, we believe the ingredients for an end-2009 recovery are falling into place.’

HSBC expects continued volatility in Asian stocks for the year as ‘ultra-low interest rates and huge fiscal packages’ meet global deleveraging. It tipped regional markets to end either 10 per cent higher or lower from their current levels.

But it said this year will be nowhere near as bad as last year, when Asian equities fell by 53 per cent. It advised investors to go for blue-chip household-name stocks, which ’should give decent upside during the upswings, but avoid excessive downside risk during the corrections’.

Source : Straits Times – 14 Jan 2009