Expect slower, more sustainable growth

While the rest of the world’s central banks have been fighting deflation, those in Asia have been fighting inflation. Now, it appears the battle has been won.

“The Asian equity market this year has performed quite badly,”

says Raymond Chan, chief investment officer of Hong Kong-based Hamon Investment Group, sub-advisor to the Renaissance Asian Fund. “We’ve had major monetary tightening measures coming from the two key central banks, the People’s Bank of China and the Reserve Bank of India.”

He says the markets have also suffered from a reduced risk appetite, which has resulted in capital outflows from the continent as a whole. As a result, markets have fallen 15% to 20%.

Asian growth is also expected to cool in 2012, further dampening investor interest. But cooling in Asia still results in a growth rate that developed economies would envy.

“We think economic growth in China will slow down from the very high level of 10% or 11% in the past two years, to a more sustainable 7% or 8% in 2012,” Chan says. “That would certainly provide one of the growth engines for the world economy.”

That kind of growth will not be restricted to China, however, and Chan expects India, Indonesia and other ASEAN members, such as Thailand and the Philippines.

“These economies are far more domestic-driven,” he says. “Exports as a percentage of GDP are much lower than countries like Korea, Taiwan and Japan.”

Ongoing urbanization, infrastructure projects and the growth of the middle class in these countries will drive growth. Add to that, government and personal finances are in much better shape than in Europe of the U.S., providing plenty of room for credit to grow.

“China and India in the last two years have embarked on very aggressive monetary tightening, while the rest of the world has done quantitative easing. We are of the opinion that the worst part of inflation in our part of the world is over.

“We’re looking for much more friendly market environment going into 2012, along with much easier monetary policy.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.