There have been significant developments in India over the past six months.

Not only was a new finance minister appointed in July 2012, but the government also announced a series of economic reform initiatives that address the country’s fiscal deficit, says Raymond Chan of Hamon Investment Group. His company manages the Renaissance Asian Fund and Renaissance China Plus Fund.

Additionally, the government lowered India’s fuel subsidy to help raise prices and allow foreign direct investment. Along with this, the government has encouraged infrastructure spending.


“The actual interest rate in India is still quite high,” says Chan. “Cutting the withholding tax from 20% to 5% was an effective way to attract foreign capital.”

He predicts the interest rate in India will continue to fall in the first half of 2013, since it’s only been cut once throughout this easing cycle—in April 2012, rates were dropped by 50 basis points after being raised by 500 points in the last tightening cycle.

The country’s absolute inflation rate is still 7%-to-8%, says Chan, but he predicts it will gradually decline. This would leave room for the Reserve Bank of India to cut rates further this year, with the next change expected to occur at the policy meeting this month.

“If rates can come down this year, India’s real economy should pick up in the first half of 2013,” says Chan.

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Looking to the rest of Asia, he says growth has been strong in the Philippines. The region’s expansion has been driven by low interest rates, improved credit growth and infrastructure projects.

Thailand has also been resilient due to significant domestic confidence. Chan adds extensive rebuilding has been done since the flooding throughout 2012, which affected several of Thailand’s provinces and districts.

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He says interest rate cuts in the last half of 2013 are likely for both the Thai and Indonesian markets.

“This is true especially in Indonesia,” says Chan, “Inflation is steadily increasing and the currency is weakening. The country’s current account deficit is also widening.”

He adds, “The growth in emerging Asian markets was bottoming out at the end of 2012 and will see incremental improvement in 2013. This will be driven by domestic factors, as well as external global factors.”


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