Asean bubble fears emerge

April 11, 2013 4:54 am

Asean bubble fears emerge

By Jeremy Grant in Singapore

When a team of analysts at Credit Suisse visited Indonesia a few weeks ago to take the temperature of Southeast Asia’s biggest economy, they were startled by what they were told by one of the country’s biggest property developers.

Ciputra Development, which builds luxury condominiums, said that, while prices in central Jakarta, the capital, had been growing at a rapid clip – about 30-40 per cent a year – a new trend had emerged.

Demand had started to spill over to greater Jakarta and even to so-called second-tier cities, where Ciputra had seen property prices jump by 50 per cent last year.

“We felt this was evidence of a property bubble,” says Robert Prior-Wandesforde, director of research in the bank’s Singapore office.For some, anecdotal evidence such as this tells a worrying story. While the economies of the 10-nationAssociation of Southeast Asian Nations grew by an average of 5.6 per cent last year, making the region a standout performer amid global economic wobbles, there are dark clouds gathering.

The price of key assets, such as property, is rising fast as monetary easing in developed countries continues to send “hot” money from advanced economies in the west, chasing anything that will produce yield.

Singapore’s local currency bond market grew by its fastest rate last year, while in neighbouring Malaysia, the value of foreign holdings of government bonds has jumped 550 per cent to M$215bn (US$69bn) since 2009, according to HSBC.

In Thailand, consumer loan growth is at the highest level of Asean’s four biggest economies; Indonesia, Malaysia, the Philippines and Thailand itself.

That has started to fuel fears of a bubble, which could have serious consequences for the management of the region’s economies, possibly acting as a brake on growth.

“The Asean ‘tiger cubs’ are heating up rapidly and are set to bubble over in due course despite varying degrees of structural progress,” Credit Suisse said in a report on Asia published this week.

That is not to say that the region’s fundamental strengths are at immediate risk. This week, the Asian Development Bank, in its annual economic outlook, pointed out that Southeast Asia was the only “subregion” in Asia to see growth accelerate year-on-year in 2012, led by a recovery in Thailand and strong public spending in the Philippines.

“This buoyancy is set to continue on the back of robust consumption, rising investment and increased intraregional trade,” it said.

Gross domestic product growth was projected to reach 5.4 per cent this year, rising to 5.7 per cent in 2014.

Plans for an Asean economic community in 2015 would boost trade volumes and help diversify export markets, the report said.

Yet Changyong Rhee, the ADB’s chief economist, warned that Asian policy makers should watch out for asset bubbles and be vigilant against inflation.

He said that inflation had remained “in check” at an average of 3.7 per cent in Asia last year. It would likely rise to 4-4.2 per cent. But he added: “I’m afraid I have to say now is [the] time for us to pay a little bit more attention to the inflation rate. Policy makers have to look out for price pressures.”

He singled out Hong Kong, Singapore and South Korea as economies where asset price bubbles were most likely.

In Singapore, Asia’s 10th largest economy, asset price cooling measures taken recently have had some effect. The cost of buying the document that allows people to buy cars have plunged.

Draconian measures in place since January to cool a rampant property market, largely fuelled by wealthy mainland Chinese and Indonesian buyers, have slowed the market somewhat.

Mr Prior-Wandesforde was concerned that policy makers may be behind the curve on spotting inflationary pressure, arguing that monetary policy in Indonesia has been “too loose for too long”. Central banks in the Philippines, Thailand and Malaysia were “in significant danger” of making the same mistake.

However, Asean finance ministers, meeting in Brunei last week, signalled that the authorities were aware of the pressures. Abd Rahman Ibrahim, Brunei’s second finance minister, admitted that monetary easing in industrialised countries could have “unintentional adverse impacts on the region”.

“But we’re confident that our central bank colleagues have monitored this issue closely and have addressed potential vulnerabilities,” he said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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