India, HK, S’pore may overheat in ‘09: Lehman
Posted by lushhomeonline on May 9, 2008
Economies in India, Hong Kong, and Singapore could overheat in 2009 as low interest rates and strong fund inflows push up asset prices, a Lehman Brothers economist said on Friday.
Robert Subbaraman, Lehman’s chief economist in Asia excluding Japan, reiterated his long-standing view that investors were likely to pour more funds into Asia when financial markets turn less volatile because the region’s economic growth and interest rates are more attractive than those in Europe and United States.
The pick-up in fund inflows could further depress interest rates in Singapore, Thailand, Hong Kong, Philippines, Indonesia, China and Taiwan, where real interest rates, or rates adjusted for inflation, were already negative, he told Reuters.
Real interest rates in India are, however, marginally positive.
‘It’s a very attractive opportunity to invest in Asia ex-Japan. We are expecting very strong capital inflows at some point,’ Mr Subbaraman said.
‘The risk we see is real rates stay too low for too long, and with resilient domestic demand, this could sow the seeds for some of the economies to overheat in 2009,’ he said.
Mr Subbaraman said there was a 40 per cent chance that domestic demand in Asia stayed healthy, leading to the overheating of economies.
However, he pegged the risk of a mild US recession and high inflation in Asia at 25 per cent, and the risk of a deep US recession, and inflation in Asia easing in second-half of this year at 20 per cent.
Mr Subbaraman also said Asian economies have started to slow, despite healthy advance gross domestic product estimates from China, South Korea and Singapore, because Lehman’s leading economic index of Asian exports is pointing to a slowdown.
He said the growth in exports from Asia excluding Japan is expected to slow to between 5-10 per cent this year from 2007’s 15-20 per cent. — REUTERS
Source : Business Times - 9 May 2008
