Stocks 'gain from crisis'

Sources: Straits Times Oct 19, 2009

Stocks 'gain from crisis'

More investors turn to equities due to low bank rates and fewer options

By Alvin Foo, Markets Correspondent

THE equities industry has gained tremendously because of the global financial crisis, said the head of a key stockbroking company in Singapore.

Investors - faced with near-zero bank deposit interest rates and fewer alternative options for their funds - have turned to stocks in a big way.

This trend is set to continue, even as Western funds are expressing more interest in Asian stocks.

DBS Vickers chairman and chief executive Edmund Lee told The Straits Times: 'Our industry has benefited in a very big way, because there are only two asset classes that have performed in the last 12 months - equities and property.'

His company was named the best retail broker at the Securities Investors Association of Singapore (Sias) awards earlier this month.

In Singapore, the surge in the Straits Times Index (STI) bears witness to the renewed interest and liquidity in stocks. Last week, the index hit a 13-month high, crossing the 2,700-point mark. It has recouped all of the losses incurred since the sharp selldown following the collapse of Lehman Brothers.

Dollar at multi-month lows

Source: Straits Times Sep 11, 2009

Dollar at multi-month lows

The dollar fell to the lowest levels for months against the euro and the yen on Friday as upbeat economic data reduced demand for the safe-haven greenback. -- PHOTO: AFP

LONDON - THE dollar fell to the lowest levels for months against the euro and the yen on Friday as upbeat economic data reduced demand for the safe-haven greenback, dealers said.

The euro rose to a near nine-month high of 1.4627 dollars in early London trading. The dollar dropped to 90.98 yen - the lowest level since mid-February.

In later London trade, the European single currency stood at 1.4591 dollars compared with 1.4583 dollars in New York late on Thursday. Against the Japanese currency, the dollar fell to 91.04 yen from 91.74 yen on Thursday.

Gold headed back towards 1,000 dollars an ounce as the weak US unit made the metal cheaper for buyers holding rival currencies, pushing up demand, dealers said.

'The dollar continues to move lower setting a new low for the year against the euro... while the dollar has fallen more sharply against the yen,' said Mr Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ in London. 'Risk appetite has been supported by mostly positive economic data from China,' he added.

Chinese economic numbers fuelled dollar weakness on Friday and investor risk appetite, underlining hopes of a global economic recovery, said Rabobank International economist Jeremy Stretch.

China said industrial activity expanded by 12.3 per cent last month and retail sales jumped 15.4 per cent, while urban fixed asset investment rose 33 per cent in January-August due to massive government spending on construction.

Traders snapped up the currencies of countries exporting commodities to the Asian powerhouse, notably the Australian dollar.

In contrast to the upbeat Chinese data, Japan revised down its estimate of second-quarter growth to 0.6 per cent, from an initial estimate of 0.9 per cent.

Most analysts meanwhile expect the dollar to weaken further amid a growing sense that recovery from the worst global economic crisis in decades is taking root.

With the economic outlook brightening, traders tend to shun the dollar in favour of riskier currencies that appeared more profitable, like the euro. -- AFP

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US consumer spending up 0.2%

Source: Straits Times Aug 28, 2009

US consumer spending up 0.2%

WASHINGTON - US CONSUMER spending rose for the third consecutive month in July while incomes were virtually flat, government data showed on Friday in a report suggesting demand picking up amid the long recession.

The Commerce Department said consumer spending - which drives two-thirds of US economic activity - rose 0.2 per cent in July, in line with the average analyst forecast.

Personal income was up less than 0.10 per cent and disposable personal income - income less personal taxes - slipped less than 0.1 per cent.

The department said spending rose a revised 0.6 per cent in June, a hefty 0.2 percentage point higher than the initial estimate.

The June surge in consumer spending had been captured in the Commerce Department's report Thursday on second-quarter economic growth, which showed spending fell at an annualized rate of 1.0 per cent, a decline less steep than first estimated.

In that report, the department left unchanged its initial estimate that gross domestic product, which measures output, shrank 1.0 per cent at an annual pace in the April-June period, better than analysts forecasts of a 1.5 per cent decline.

Friday's consumer spending and income data showed that consumer prices held steady in July from June.

As a result, real consumer spending - excluding price variations - rose 0.2 per cent in July.

Real disposable income fell 0.1 per cent in July, following a 1.6 per cent decline in June.

Americans struggling with the worst recession since the Great Depression continued to save in July but at a slower pace, with the savings rate as a percentage of disposable income falling to 4.2 per cent.

The savings rate had hit its highest level since 1995 in May as households hunkered down as unemployment surged in the sharp recession that began in December 2007. -- AFP

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2nd term for Bernanke

Source: Straits Times Aug 25, 2009

2nd term for Bernanke

OAK BLUFFS (Massachusetts) - PRESIDENT Barack Obama on Tuesday awarded Federal Reserve Chairman Ben Bernanke a second term, saying his bold 'out-of-the-box' thinking would help steer the US economy out of the worst slump since the 1930s.

NEED TO PUMP LIQUIDITY INTO THE FINANCIAL SYSTEM MR BERNANKE has worked closely with the Treasury Department and the White House in plotting a route out of the recession and stabilising and reforming the debt-laden US financial sector. He now faces the delicate decision of how quickly to scale back the massive government effort to pump liquidity into the financial system. ... more BEN BERNANKE - FROM ECONOMICS PROFESSOR TO FEB CHIEF * MR BERNANKE, who has to be reconfirmed by the Senate, had taken unusual high-profile steps for a Fed chief of late, appearing in a profile on a popular US newsmagazine program, CBS's '60 Minutes' and at a town-hall meeting in Kansas City, Missouri. * Before his appointment as chairman of the Federal Reserve on Feb. 1, 2006, he was chairman of the President's Council of Economic Advisers, from June 2005 to January 2006. ... more MR OBAMA'S spokesman Bill Burton explained the president had made the surprise announcement merely to scotch speculation about Mr Bernanke's future. Some experts had predicted that Mr Obama would replace the central banker with one of his top advisors Larry Summers for the new term beginning next year. ... more

Mr Obama suddenly interrupted his vacation on the resort island of Martha's Vineyard to make the announcement, praising Mr Bernanke's battle against 'one of the worst financial crises that this nation and the world have ever faced.'

Lauding the cerebral Mr Bernanke for learning lessons of the 1930s Great Depression, and his background, temperament, courage and creativity, he said the Fed chief was the ideal man to help lead the economic rebound.

'Ben approached a financial system on the verge of collapse with calm and wisdom, with bold action and out-of-the-box thinking that has helped put the brakes on our economic freefall,' Mr Obama said.

The president warned however that the economy and the financial system had a 'long way' to go before its full health was restored.

Mr Bernanke, 55, will be expected to win Senate confirmation for his reappointment, but could face stiff questioning from some lawmakers who believe he did too little to stave off the recession and protect consumers.

Mr Obama's unexpected announcement, on what aides had billed as a 'no news' vacation, will likely give the financial markets, on which many Americans depend for their retirement savings, a quick boost. It may also dampen criticism of the president's economic management on a day when his Office of Management and Budget and the Congressional Budget Office are both due to release new statistics on the ballooning deficit.

Mr Obama's sudden announcement could also suck media interest away from a flurry of lawmakers' town hall meetings featuring attacks on his limping health care reform plan and a new row over Bush-era 'war on terror' tactics. His praise for Mr Bernanke read like a defense of his own economic policy, which is facing mounting opposition as his political approval ratings decline.

'Almost none of the decisions that he or any of us made have been easy,' he said, mentioning auto and financial industry rescues and his administration's bumper economic stimulus package. 'They faced plenty of critics, some of whom argued that we should stay the course or do nothing at all. But taken together, this bold, persistent experimentation has brought our economy back from the brink.'

Mr Bernanke admitted that the Federal Reserve had been challenged by the unprecedented events of recent years. 'We have been bold or deliberate as circumstances demanded,' he said, adding that his objective was to restore a stable financial and economic environment. -- AFP

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China faces new econ worries

Source: Straits Times Aug 24, 2009

China faces new econ worries

BEIJING - CHINA'S top economic official warned the country faces new problems and said Beijing will stick to its stimulus because the recovery lacks a solid foundation, according to comments reported on Monday.

Premier Wen Jiabao cautioned against being 'blindly optimistic' despite improvements in the economy, according to a statement on the Cabinet's Web site.

The economy 'still faces many new difficulties and problems,' Mr Wen was quoted as saying during a visit to southeastern China that ended on Monday. 'There are still a lot of unstable and uncertain factors ahead and the economic situation ahead is still very grave, although both the world economy and the national economy are making positive changes now.'

The premier cautioned that the effects of some government measures might fade while others would take time to show results, the Cabinet statement said. It gave no other details of potential problems.

Mr Wen's comments echoed his repeated warnings against complacency and assurances that easy credit will continue. But they clashed with increasing optimism among analysts who say China is making dramatic progress in emerging from its slump.

Mr Wen promised to stick to policies meant to boost domestic demand, maintain easy credit and promote efficiency. Beijing is in the midst of a two-year, 4 trillion yuan (S$844 billion) effort to boost domestic consumption by pumping money into the economy through higher spending on building highways and other public works.

Driven by that spending, economic growth accelerated to 7.9 per cent in the latest quarter, up from the previous quarter's 6.1 per cent, but Mr Wen and other officials have called for continued vigilance. They say weak corporate profits and other areas show a recovery is not firmly established.

Many analysts expect China to be the first major economy to emerge from the sharpest global downturn since the 1930s.

The strongest improvement has been in stimulus-financed areas such as construction. Most of the early benefits have gone to state-owned companies, while a private sector recovery has lagged.

Analysts say more gains are still dependent on stimulus spending. Chinese stock markets have declined this month on concern Beijing might curb record bank lending that financed the stimulus and ignited a boom in stock prices. -- AP

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More bank failures expected

Source: Straits Times: Aug 24, 2009

More bank failures expected

People walk past a Bank of America branch in New York August 13, 2009. -- PHOTO: REUTERS

NEW YORK - A PROMINENT banking analyst said on Sunday that 150 to 200 more US banks will fail in the current banking crisis, and the industry's payments to keep the Federal Deposit Insurance Corp afloat could eat up 25 per cent of pretax income in 2010.

Mr Richard Bove of Rochdale Securities said this will likely force the FDIC, which insures deposits, to turn increasingly to non-US banks and private equity funds to shore up the banking system.

'The difficulty at the moment is finding enough healthy banks to buy the failing banks,' Mr Bove wrote.

The FDIC is expected on August 26 to vote on relaxed guidelines for private equity firms to invest in failed banks, after critics said previously proposed rules were too harsh and would actually dissuade firms from making investments.

Mr Bove said 'perhaps another 150 to 200 banks will fail,' on top of 81 so far in 2009, adding stress to the FDIC's deposit insurance fund.

Three large failures this year - BankUnited Financial Corp in May, and Colonial BancGroup Inc , Guaranty Financial Group Inc in August - collectively cost the fund roughly US$10.7 billion (S$15.4 billion).

The fund had US$13 billion at the end of March.

Regulators closed Guaranty's banking unit on Friday and sold assets of the Texas-based lender to Banco Bilbao Vizcaya Argentaria SA . The FDIC agreed to share in losses with the Spanish bank.

Mr Bove said the FDIC will likely levy special assessments against banks in the fourth quarter of this year and second quarter of 2010.

He said these assessments could total US$11 billion in 2010, on top of the same amount of regular assessments. 'FDIC premiums could be 25 per cent of the industry's pretax income,' he wrote. -- REUTERS

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Well-placed for pickup

Source: Straits Times Aug 16, 2009

PM'S NATIONAL DAY RALLY SPEECH

Well-placed for pickup

By Alvin Foo PM Lee said the eye of the economic storm has passed for Singapore but the outlook beyond the third quarter is still unclear. -- ST PHOTO: JOYCE FANG

SINGAPORE is well-positioned to pick up strongly when the global economy recovers because of its comprehensive and decisive response to the downturn, said Prime Minister Lee Hsien Loong on Sunday night.

Giving an update on the economy amid signs of global recovery, Mr Lee said the economy is in a 'deep trough', but Singapore is coping well.

'Because of our comprehensive, decisive response to the downturn, we can be confident of our future,' he said in his National Day Rally speech at the University Cultural Centre.

The resilience package unveiled during January's Budget has worked, and there is no need for a 'new prescription' now, he told the gathering of politicians, grassroots and business leaders, among others.

PM Lee said the eye of the economic storm has passed for Singapore but the outlook beyond the third quarter is still unclear.

Although the economy contracted 6.5 per cent in the first half year, it was not as bad as feared, said PM Lee.

Last week, the Government released economic growth data which showed a 20.7 per cent rise in the second quarter over the first quarter's figure.

Mr Lee said the labour situation has stabilised and some companies are hiring again, although in small numbers.

'The third quarter should be alright,' he told the gathering.

But sounding a note of cautious optimism, he said: 'Beyond that, the outlook is still unclear.'

For instance, there are no signs of Christmas orders rushing in yet. Also, companies which have asked their staff to go on compulsory leave or shorter work week, have reduced their output but not headcounts.

While this is alright for the short term, it is unclear how long these firms can hold on to extra workers, said Mr Lee, adding that if the recovery is delayed, they may have to downsize.

Mr Lee said Singapore can still grow even if there is a subdued global recovery, by sharpening its skills and expanding its market share, even if world markets are not enlarging quickly.

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HK pulls out of recession

Source: Straits Times Aug 14, 2009

HK pulls out of recession

Hong Kong seasonally adjusted from the previous quarter, helped by improving trade flows and consumption. --PHOTO: AFP

HONG KONG - HONG Kong pulled out of its deepest recession since the Asian financial crisis in the second quarter as GDP jumped 3.3 per cent, seasonally adjusted from the previous quarter, helped by improving trade flows and consumption, government data showed on Friday.

The figures confirm data provided to Reuters earlier, and the Hong Kong government on Friday upgraded its full-year forecast for GDP this year to a decline of between 3.5 and 4.5 per cent, against a previous forecast for a drop of between 5.5 and 6.5 per cent.

'The GDP data was much better than we expected, partly because exports were better and partly because of a pick-up in private consumption,' said Paul Tang, senior economist at Bank of East Asia. 'Private consumption is being driven up by stock market gains and by the property sector, which started doing well. The second half will show positive growth. We will revise our forecast upwards.'

However, the economy remains weak and gross domestic product fell 3.8 percent from the second quarter last year, although that was much better than forecasts for a 5 per cent decline.

'The external environment is still uncertain,' government economist Helen Chan told a news briefing.

The territory follows neighbour Singapore, which surged out of recession in the second quarter, while Germany and France surprised financial markets on Thursday by announcing they too had returned to growth.

As a trading and financial hub, the territory has been hard hit by the global economic downturn. A year ago it slipped into its deepest recession since the Asian financial crisis in 1997/98 as trade was hit by weak global demand and rising unemployment made consumers cautious.

Consumers have, however, become more upbeat as the Hong Kong stock market has rebounded 80 percent since early March and property prices have recovered 20 per cent this year. Private consumption expenditure in the second quarter surged 4 per cent from the first quarter.

Exports improved in the second quarter as mainland China's economy picked up, although they were still down on last year.

Economic recovery is likely to be very gradual and will depend on how soon the US economy can rebound, economists say. -- THOMSON REUTERS

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Recession to end soon

Source : Straits Times Aug 13, 2009

In its battle against the worst financial crisis since the Great Depression, the Fed has cut interest rates to near zero and put in place a number of emergency lending programs. -- BT FILE PHOTO

NEW YORK - THE majority of big banks that do business directly with the Federal Reserve say the recession will end this quarter, and they see only a low risk that the economy will take another turn for the worse.

Seventeen out of the 18 dealers in the Fed's exclusive network of primary dealers that responded to a Reuters poll said the economy will see its first quarter of growth since 2007 in the third quarter of 2009.

The dealers on average see a 26 per cent likelihood of a so-called 'double-dip' recession, in which an economy plunges back into recession after a brief recovery. Views ranged from a 10 per cent likelihood (Morgan Stanley, Goldman Sachs and RBS) to a 60 per cent likelihood (Mizuho and Cantor Fitzgerald).

On Wednesday, the Fed, the US central bank, said the economy was levelling out after a ravaging recession that started in December 2007. But risks remain and the Fed reiterated its pledge to keep interest rates very low for an extended period.

In its battle against the worst financial crisis since the Great Depression, the Fed has cut interest rates to near zero and put in place a number of emergency lending programs.

Primary dealers don't expect the Fed to raise rates until 2010 at the earliest. Four banks expect the Fed to raise rates in the first half of 2010, seven say the second half of 2010.

The Fed also said it will have phased out its US$300 billion (S$433 billion) Treasury purchase program by the end of October. The Fed has bought about 84 per cent of the US$300 billion so far, and reviews on the effectiveness of the program have been mixed.

The 10-year note's yield was 3.71 per cent late on Wednesday, up from a five-decade low just above 2 per cent at the end of 2008.

A year from now, in the third quarter of 2010, dealers see the benchmark 10-year Treasury note's yield at around 4 per cent, according to the average forecast of the 17 primary dealers who answered that question.

This forecast suggests little concern that huge government debt issuance to pay for financial rescues, on course for US$2 trillion this year alone, will ignite a major upsurge of inflation and send Treasury yields spiking higher.

The Fed on Wednesday reiterated that it expects inflation to remain subdued for some time. - Reuters

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'Severe asset inflation'

Source: Straits Times Aug 11, 2009

By Melissa Tan Asset inflation - meaning a rise in price of assets such as stocks and property - is a possible consequence of the United States' current expansionary fiscal policy. --ST PHOTO: ALPHONSUS CHERN

SINGAPORE risks 'severe asset inflation' during the economic recovery, a local economist has warned.

But this danger can be averted if the Government acts now to control the prices of HDB flats, said Mr Paul Yip, Nanyang Technological University (NTU) associate professor of economics.

Asset inflation - meaning a rise in price of assets such as stocks and property - is a possible consequence of the United States' current expansionary fiscal policy, Professor Yip said on Tuesday.

He was speaking at an NTU symposium - on exchange rate systems and Asian macroeconomic policies - which brought together 11 macroeconomists from institutions such as Stanford University and Delhi School of Economics.

'Many people say that the property market is rebounding, but I don't think so; we are still bottoming. Recovery will be slow ... and a few years later we might have severe asset inflation, much more than the rise today,' Prof Yip said.

'So if you are a stock investor or property investor, it's very easy. Just hold your stock and shares for another three or five years - the price will climb to be much higher. But if you lose money, don't blame me,' he quipped.

Prof Yip noted that the US government has lowered interest rates and expanded its money supply in a bid to avoid a repeat of the Great Depression.

But post-recession, the government may fail to shrink the money base back to pre-downturn levels, he said. In that case, excess US dollars would flood the market.

'For Singapore, there may be an inflow of money from the US, increasing the money base and therefore the money supply... When the recovery comes, there will be wage inflation and consumer price index inflation, and this will fuel asset inflation,' he told The Straits Times.

'Rents will rise and then people will be able to charge even higher rents, causing a vicious circle,' Prof Yip said.

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Opportunity knocks for Asian banks: Tony Tan

Source: Business Times Published August 7, 2009

GIC deputy chairman says worst is over but challenges remain - along with chances By TEH SHI NING (SINGAPORE) The worst is over for Asia and there are unique opportunities ahead, says Tony Tan, deputy chairman of the Government of Singapore Investment Corporation (GIC). These include the chance for Asian banks and capital markets to step in to meet the massive capital demand needed to finance Asian growth, as their Western counterparts retreat. But, to quickly develop regional capital markets will demand more cooperation than ever before between the regulatory and development authorities of financial sectors in the region, said Dr Tan, who is also GIC's executive director.

He was speaking at the Economic Society of Singapore's annual dinner last night. In his last speech in this vein, delivered in April last year, Dr Tan warned that the global economy could sink into its worst recession in 30 years - a warning many had then dismissed as too gloomy but which now rings with prescience.

Last night, it was with a cautious optimism that Dr Tan outlined the implications and opportunities for Asia as the worst of the global financial crisis impact fades, while pointing out the lingering risks.

'Asia experienced a dramatic slowdown, but Asia's fundamentals are strong,' he said.

'Now that there are signs of stabilisation in the global economy, Asian economic growth will recover.'

But he had a different overall prognosis for the US and other major developed economies. While they are expected to register positive growth later this year, Dr Tan says that sustained growth in 2010 and beyond remains uncertain, given deleveraging headwinds.

It is also this uncertainty which Dr Tan sees as the 'greatest risk' to Asia's outlook - 'a global economic and financial environment that does not stabilise and recover by 2010'. Other risks, Dr Tan pointed out include weak demand and deflation risk from the US, as well as the threat of a dramatic rise in protectionism if there is no recovery next year.

The major challenge ahead, he said, is the uncertainty raised by the apparent failure of Western or American models, and the 'serious unanswered questions on the role of markets and the state, including the appropriate level of regulation and state intervention'.

However, it is in such an environment that 'Asian banks and capital markets will face both a tremendous challenge and opportunity to intermediate huge regional savings to meet massive capital demand from Asian growth', Dr Tan said.

As the Western banking system remains 'hampered by capital constraints and re-regulation', Dr Tan said, this 'leaves the playing field unusually open for Asian financial institutions and markets, particularly for the next 3-5 years'.

Asian banks entered the crisis healthier than their global counterparts, relatively unleveraged with debt.

But to take advantage of this, regional authorities need to coordinate financial regulatory architecture and practice, and build up regional capital markets, while avoiding over-regulation's dangers, Dr Tan said.

Also, as 'low global interest rates combined with ample liquidity could give rise to volatile capital flows and asset bubbles across Asia', managing this will be a 'major task' for policymakers, he said.

Dr Tan also highlighted the reorientation of Asia's economic growth model as a key implication of the global crisis on this region. Particularly for the more populous countries, economic growth will shift from being export-driven to a more balanced model of growth, which is as dependent on domestic consumption as on export growth.

He sees this as helpful, because domestic demand would help mitigate weak demand from the developed world for the next few years, and also because some of the domestic investment involved in such rebalancing would also boost productivity and economies' productive capacity.

'Rebalancing growth will not be an easy process,' Dr Tan said, noting how the Chinese authorities are already 'walking a fine line between restructuring the economy for longer- term sustainability and attempts to mitigate the short-term pain'.

He said: 'Understandably, much of the focus has been on the negative aspects of this adjustment, but I am optimistic that Asia will come out of this crisis in a stronger position.'

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Growth strategy 'robust'

Source: Straits Times Aug 6, 2009

IT'S a misperception that the Singapore economy is driven largely by foreign MNCs, which have crowded out smaller, local companies catering to domestic demand, said Senior Minister of State for Trade and Industry S. Iswaran on Thursday.

He maintained that there is a healthy mix of companies, with no particular corporate model being dominant.

'Over the last few years, SMEs share of the total value-add produced in our economy has been steadily increasing to just under 50 per cent. Small companies therefore account for about half of Singapore's value-added,' said the minister in his address to the Singapore Economic Review conference on Thursday morning.

' If you were to split total value-added along the lines of foreign versus local companies, you would find that each accounts for about half of the total value-added of the economy.'

On questions raised by some economists that Singapore has become too reliant on external demand, Mr Iswaran sought to explain that if it did not have an export-led growth model, the economy would not have grown as fast in the past decade.

External demand accounts for three-quarters of Singapore's total demand. Between 2000 and 2008, average annual real growth in total demand was 8 per cent - with external demand contributing 7 percentage points while domestic demand contributed just 1 percentage point.

'For a small economy like Singapore, the reality is that external demand will always be a key driver if we want to raise living standards for our people,' said Mr Iswaran, adding: 'If Singapore did not have an export-led growth model, we would not have grown as fast in the past decade. And we would not have been able to build up the resources that have helped to cushion the impact of this current recession.'

He told the conference that Singapore's approach to economic development and growth remains robust strategies have been constantly reviewed to match the economic conditions and the goals set.

The tenet is a simple one: to capture growth opportunities when prospects are good, to ensure that it will have enough resources to ride through lean times.

But in the wake of the current economic crisis, which is expected to lead to significant shifts in the patterns of global demand and growth, Mr Iswaran said it is imperative that Singapore be well prepared for the choices, and poised for the opportunities that lie ahead.

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Asia to emerge stronger

Source: Straits Times Aug 6, 2009

By Alvin Foo

THE worst of the crisis seems to be over for Asia, which will emerge stronger owing to its sound fundamentals, said Government of Singapore Investment Corp (GIC) deputy chairman and executive director Tony Tan on Thursday night.

He sounded a cautiously upbeat message at the annual Economic Society of Singapore dinner, noting that the crisis also presented opportunities for Asian financial institutions and markets.

'The worst seems to be behind us in Asia. Asian economies are now expected to see continued improvement through 2010,' Dr Tan said at the dinner held at Swissotel The Stamford.

While cautiously optimistic in the short term, he also warned of possible risks and challenges to recovery, such as trade protectionism and a global environment which does not stabilise and recover by next year.

In July 2007, at another event, Dr Tan spoke of dark clouds on the horizon for financial markets. In April last year, well before the financial mayhem that erupted in September, he warned the world could be facing its worst recession in 30 years.

On Thursday night, he said the region would emerge from the crisis in a better position, and reorientate itself to ensure more balanced and sustainable development.

'Asia's fundamentals are generally sound, policy-makers have lots of flexibility, and the population is hard-working and educated,' said Dr Tan.

The economic downturn has presented regional financial institutions and markets with 'tremendous opportunities over the next decade', he noted.

This is because Western banks will probably be unable to meet the capital demand needed to finance Asia's growth due to constraints and re-regulation.

'This leaves the playing field unusually open for Asian financial institutions and markets, particularly for the next three to five years,' he said.

However, regional banks and markets will need to develop quickly to fill this gap, he added. Other implications of the crisis for Asia are the volatile capital flows and asset bubbles which policy-makers will face due to ample liquidity and low interest rates.

'Like in the early 1990s, managing large capital inflows and prospective bubbles given managed exchange rates will be a major task for policy-makers,' said Dr Tan

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Stock boom alarms Beijing

Source: Straits Times Aug 3, 2009

BEIJING - THE crowd in the packed Guosen Securities office jostles around buzzing printers that spit out receipts for their share buys, hoping to cash in on China's stimulus-fuelled stock market boom.

FIRMS USE LOANS TO PLAY MARKET THE Finance Ministry says it found some companies played the market with money borrowed for stimulus projects. It gave no details but Chinese companies frequently are accused of violating China's already lax financial controls by diverting money from borrowing or their core business into stocks in hopes of making a quick profit when the market is rising. ... more

'The central government has to fulfil their promise of 8 per cent economic growth,' said Wu Jun, 62, a retired civil servant who has part of his life savings of 50,000 yuan (S$10,500) and lives on a 2,000 yuan-a-month pension in stocks. 'They'll come up with measures to keep the market in good shape.'

But while investors expect the market - up more than 80 per cent this year - to keep rising, Chinese leaders are alarmed. They worry that too much of the $1 trillion lending binge by state banks that paid for China's nascent revival was diverted into stocks and real estate, raising the danger of a boom and bust cycle and higher inflation less than two years after an earlier stock market bubble burst.

Beijing is trying to tighten credit controls without derailing the economic revival or causing a market crash - a risky path at a time when Chinese leaders say a recovery is not firmly established.

'It's a very serious threat. The Chinese government is walking a tightrope,' said Mark Williams, Asia economist for Capital Economics in London. 'There is the question of what happens if they rein in lending, because there is really no strong evidence that private sector demand is picking up.'

Any hiccup in China's recovery could dent its rising demand for imported industrial raw materials and consumer goods, damaging hopes it might lead the global economy out of its worst downturn since the 1930s.

China's growth accelerated in the latest quarter to 7.9 per cent over a year earlier while the United States and Europe struggle with recession. The surge was driven by Beijing's 4 trillion yuan plan to insulate China by pumping up domestic demand with heavy spending on building highways and other public works.

But the growth - up from 6.1 per cent the previous quarter - highlighted China's continued reliance on stimulus spending. The big gains were in construction and other stimulus-fuelled areas, while retail spending and other private sector activity lagged.

Bank credit soared to a record 7.1 trillion yuan in the first half of the year and the rate of lending is accelerating. Loans in June expanded to more than double the May level at 1.5 trillion yuan ($220 billion).

Economists say as much as 15 per cent or 1 trillion yuan ($145 billion) of that money has been diverted into stocks and real estate despite government rules that say banks should lend only for productive investment. -- AP

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