Credit Suisse becomes cautious on H2
One of the world’s leading private
banking groups, Credit Suisse, says that while first half prospects
for Asia remain sound, sentiment on the second half of the year are
less clear. Joseph Tan, a chief economist in its private banking
division, says growth and inflation dynamics may prove highly
challenging going forward.
Credit Suisse Private Banking
believes Asia’s economic growth in the first half of 2010 will be
secure given the weak performance in the same period last year,
although export-dependent countries can expect a slowdown in the
second half.
However, higher 2010 growth will also
see higher inflation rates as evident in the recent sharp increases
in property prices in Singapore and Hong Kong at the first hint of
an economic recovery in the second half of 2009.
According to Joseph Tan, director and chief
economist of Credit Suisse Private Banking division, in 2010, Asia
will see stronger growth, higher inflation, higher rates and
stronger currencies. But, he warns, beneath this “simple summary,
growth and inflation dynamics are highly challenging”.
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Macroeconomics
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GDP and inflation forecasts for selected
Asia-Pacific economies, ranked by 2010 GDP forecast
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GDP growth (%)
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Average CPI (%)
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Policy rates (%)
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2009E
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2010F
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2009E
|
2010F
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2009E
|
2010F
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China
|
8.5
|
9.5
|
-0.8
|
2.5
|
5.31
|
5.85
|
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India(1)
|
6
|
7.7
|
1.8
|
6.7
|
4.75
|
6
|
|
Singapore
|
-1.8
|
6
|
0.5
|
1.9
|
n/a
|
n/a
|
|
Indonesia
|
4.7
|
5.8
|
5.7
|
6.5
|
6.5
|
7.5
|
|
Hong Kong
|
-2
|
5.7
|
0.3
|
2
|
n/a
|
n/a
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|
Taiwan
|
-2.5
|
4.6
|
-0.5
|
2
|
1.25
|
1.75
|
|
South Korea
|
0.2
|
4.5
|
3.2
|
4.5
|
2
|
3.5
|
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Philippines
|
2.2
|
4.3
|
3.6
|
5
|
4
|
4.5
|
|
Malaysia
|
-1
|
4
|
1
|
1.9
|
2
|
2.25
|
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Thailand
|
-3
|
3.5
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-1.5
|
2.2
|
1.25
|
2
|
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Australia
|
0.7
|
2.6
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2
|
2.5
|
3.8
|
4.5
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Japan
|
-5
|
1.7
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-1.1
|
-0.3
|
0.1
|
0.1
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Asia-Pacific – average
|
1.1
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5.1
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0
|
2
|
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(1) Fiscal year ending March. Source:
Credit Suisse
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“Led by China and India, non-Japan Asia is
projected to deliver a robust 7.6 percent real GDP growth in
2010.
"To sustain the recovery, US consumption needs
to return in a meaningful way. With US consumers repairing their
balance sheets, the consumption rebound is likely to be weaker than
in previous cycles and this throws H2 2010 into question for
Asia.
“Nevertheless, Asian economic growth in H1
2010 will be secured because of low base effects and strong
government spending.”
However, he expects export-dependent countries
such as Singapore and Hong Kong to experience moderate growth in
the second half once the low base effect wears off. And he foresees
that this will bring policy challenges for regulators in the
region.
“This mixed economic picture brings policy
challenges,” said Tan. “While Asian policymakers are concerned the
current economic rebound might be a false dawn, they are also
challenged by higher rates of inflation.”
While countries such as China, Hong Kong and
South Korea are seeing asset price inflation because of the high
liquidity levels, countries like India and Indonesia are affected
by higher commodity prices.
“Whatever form inflation takes, it is
unequivocal Asia is no longer in crisis mode and that the central
banks need to normalise the ultra-loose monetary conditions,” Tan
added.
Credit Suisse expects central banks in Asia to
start hiking interest rates as early as the first quarter of 2010,
given Asia’s recovery momentum, higher commodity prices and rising
asset price inflation. South Korea, India and Indonesia are
expected to lead the trend in rate hikes.
According to Credit Suisse, Asia’s banks and
insurance companies are projected to post an earnings recovery of
17 percent in 2010 from -1.4 percent in 2009, driven by the
cyclical recovery in loan demand, improvement in credit quality
amid the economic expansion and higher investment income.
The biggest risk for Asian equities is an
increase in US interest rates, but Fan Cheuk Wan, head of
Asia-Pacific research for the Credit Suisse Private Banking
division, does not think it is likely to happen before the third
quarter of 2010.
“In 2010, we stay constructive on the
fundamental outlook of the Asian equity markets; on a further
acceleration and broadening of the economic recovery, which should
underpin the favourable macro backdrop for a corporate earnings
recovery,” she said.
“We are more cautious about the market outlook
in the second half of 2010, as rising risk of policy tightening is
likely to bring headwinds to Asian equities.”
However, the bank remains bullish on Asia as a
destination for investors. “We expect Asia will remain the
preferred destination for long-term investors in their global asset
reallocation away from [US dollar] assets into high-yielding and
high-growth assets,” said Fan.
“This should underpin further upside potential
in the Asian equity markets in the coming two quarters, given the
region's robust macro and earnings recovery potential and
undemanding valuations.”