The price declines will bring valuations to a more 'normal' level after markets rose rapidly the past year, Mr Vaessen said yesterday.

Japan and South Korea's office markets are expected to have the best performance in Asia as they benefit from a supply shortage, Mr Vaessen said. Both markets are set to offer property investors returns of as much as 13 per cent over the next five to seven years, he said.

Retail space in Beijing and Shanghai may also offer higher investment returns, Mr Vaessen said. Investors should stay away from Vietnam, Thailand and Malaysia, he added, citing Vietnam's accelerating inflation and volatile currency and political instability in Thailand and Malaysia. --  2008 August 7  Bloomberg

Asia real estate lure

The credit crisis in the United States has turned out to be an opportunity for the Asian property market, rather than slowing it down.

Cash flow into Asian property from outside the region is accelerating, according to a global report published yesterday.

The Financial Times (FT), quoting data from the study, said that property investment in Asia grew 27 per cent to US$121billion (S$165.8 billion) last year, and it continues to grow.

Credit problems and declining real estate prices in the US and Europe have prompted investors to focus more on Asia, both for long-term returns and opportunistic investments.

Most Asian markets recorded direct real estate returns above the global average of 10 per cent last year, FT reported. 

This growth is expected to continue, according to the report, although at a lower rate.

Still, the outlook in Asia is more optimistic than that of Europe and North America, where investments slowed dramatically in the second half, said FT.

The report, published by KPMG, the Asia Pacific Real Estate Association, and index provider FTSE, came at a time of aggressive fund-raising activity for new global property funds.  

FT said many of these funds are raising their investment allocations to Asia to tap into economies that are relatively shielded from the credit crisis in the US.

MGPA, the private equity fund manager part owned by Australia's Macquarie Bank, for instance, launched a global fund this week that will invest mostly in Asia. The fund, of which 40 per cent came from North American investors, has already committed US$2.2 billion to investments in Singapore, Japan, China and Thailand.   - 2008 June 19   ASIA ONE

Capital inflow to Asian real estate to climb 
Asian market being powered by longer-term investments: report

The ongoing credit crisis in the US and Europe has put pressure on a decade of sustained growth in global real estate but the inflow of capital to Asia's real estate market is accelerating, says a report.

The report - which was released yesterday by KPMG, the FTSE group and the Asian Public Real Estate Association (Aprea) - says that Asian real estate is being powered by a combination of opportunistic and increasingly longer-term investments, coming off the back of a prolonged period of steady growth. Returns in Asia are projected to remain higher than the global average for the coming year, according to the report.

Also, it says that that the slowdown in the US and European markets is unlikely to cause an immediate negative impact on Asia in 2008 - although banks will tighten credit policies, limiting financing options for real estate investments.

'Despite the current tightening of credit by banks, the deals will continue to happen, but they may take longer, the price may cost more and lead to a temporary slowing of the supply cycle,' says Andrew Weir, partner-in-charge of property and infrastructure for KPMG in China and Asia-Pacific.

However, the current sub-prime fallout elsewhere may well act as a catalyst for the inevitable further development of Asia-Pacific as a centre of property and investment management, he adds.

According to the report, total investment in the region has continued to increase, growing by over 27 per cent in 2007 to reach US$121 billion.

Within the region, Japan remains a dominant force, not only accounting for half of last year's real estate transactions but also experiencing the strongest growth. China also grabbed a number of headlines last year as it continued to produce attractive returns for investors.

Looking ahead, Japan continues to be viewed as an attractive market to look into, particularly for the lower-risk investor, while analysts still view China as a popular place to look at as large volumes of capital chase more limited investible stock, the report said.

Real estate funds remain the dominant source of capital for real estate investments in Asia into 2008, KPMG, FTSE and Aprea observe.

The proliferation of single-market high-return funds such as those based on China and Vietnam continue to service the needs of the short-term speculative investor. But long-term funds are generally taking a 'wait and see' approach following the dampened sentiment in US markets, the report said.

It also notes that the potential for new real estate investment trust (Reit) listings is being affected by the dull market sentiment. - 2008 June 19    SINGAPORE BUSINESS TIMES

Experts believe that the number of top bankers leaving the US for Asia is set to increase as a result of the credit squeeze.

As investment banking profits are squeezed in US and Europe by the credit crunch, institutions are looking to Asia where many Chinese and Hong Kong firms are flush with cash, having raised capital by listing shares recently.

Dealogic, which supplies IT solutions to the banking industry, said the number of acquisitions by private equity in Asia, not including Japan, increased 15% in the first 3 months of the year while global deals declined.

Vikram Gandhi, head of Credit Suisse’s Global Financial Institutions Group, is transferring to Hong Kong to personally oversee the firm’s corporate finance business in the region.

Mr Gandhi, who will continue to run the group’s Americas business, is the latest in a long line of dealmakers to relocate from New York to Hong, these include executives from Blackstone Group, Goldman Sachs and JP Morgan.

Former executive with Deutsche Bank and Morgan Stanley, Scott Moeller, said investment bankers follow the money and with sovereign wealth funds having a lot of money and with Asia having escaped the worst of the credit crunch and with the crunch having hit the US and Europe the hardest, it is not surprising at all.

Mr Moeller, who is currently a Professor at the Cass Business School, added once you get critical mass in a location, it begins to snowball and that is what is happening in Asia.

However, Mr Moeller concluded by saying London or New York will not be losing their crowns as leading financial centres any time soon.   - 2008 May 21   FINANCE MARKETS

Hong Kong has the world's priciest apartment rents, with the lease for a three-bedroom unit costing more than US$9,700 on average a month, a survey released Wednesday said.

The survey covered 2007 and is based on lease prices for a three-bedroom apartment in popular expatriate areas, ECA International said.

Asian cities, led by Hong Kong , accounted for six out of the top 10 locations that have the world's most expensive rentals for three-bedroom apartments, it said.

Other Asian cities in the top 10 global list are Mumbai which ranked sixth, Seoul seventh, Singapore ninth, and Ho Chi Minh City 10th.

Monthly rentals in Asia were on average US$3,820 , well above the global level of US$2,950 , said ECA International.

Globally, Moscow ranked second, followed by New York City , Tokyo , and London in fifth spot, said ECA International.

"A robust economy and increased demand for high-end accommodation have been instrumental in driving rental prices up," said Lee Quane , ECA International's general manager in Hong Kong .

Hong Kong apartment rents of US$9,734 were more than double Asia's average and reflected the geographical advantage of the Chinese territory for foreign firms wanting to build a base in the region, ECA said.

"Particularly in the financial services industry, people are moving into Hong Kong so, in spite of its relative high cost, it still remains one of the prime locations for foreign companies to establish themselves," said Quane.

A three-bedroom apartment in Singapore rented for US$4,460 a month on average last year, compared with US$3,364 in 2006, ECA said.

"The demand for high-end accommodation has risen, driving up rental prices, which can be partly explained by companies expanding their operations in Singapore together with government initiatives to attract skilled workers from overseas," said Quane.

At the same time, a number of factors limited the supply of property available in the city-state, he said.

Mumbai , India's financial hub, had the region's second-highest rental rise of 21%. A three-bedroom apartment there cost US$5,991 dollars to lease, ECA said.

For other major Asian cities, Jakarta ranked 10th in Asia, Manila was 14th, Bangkok came in 15th followed by Kuala Lumpur in 16th spot.

According to the survey, Karachi is the cheapest city in the world to rent a three-bedroom apartment.

ECA says its annual survey of rentals compares lease prices in 92 global cities.  2008 April 16    AFP

Setting Up in Asia

Buoyed by record economic growth rates throughout Asia (Singapore and Vietnam expect a final tally of 8 per cent for 2006 and China is projected at 10 per cent) multinationals are eager to gain a foothold in the Asian marketplace.   - 2007 March 20   BUSINESS TIMES

Working towards Asian integration

Some might have thought that Masahiro Kawai had become 'yesterday's man' after the idea of an Asian Currency Unit which he proposed last year while heading the Asian Development Bank's regional integration office was shot down in flames by critics. This impression may have been reinforced when the ADB announced last November that Mr Kawai would leave its Manila headquarters and return to Tokyo to become dean of the Asian Development Bank Institute (ADBI) there.

But in fact the former Japanese academic, who has held senior positions in the World Bank and ADB as well as in government, is looking more like 'tomorrow's man'. On his shoulders rests much of the responsibility for getting across the message about the need for Asian economic integration. It is a task that needs to be approached not exactly at grass-roots level but among the myriad Asian policymakers who have the power to make integration happen.

The Japanese government-funded ADBI has been tasked with carrying out a study into how to provide the physical and 'software' infrastructure needed to knit together a highly diverse group of Asian nations into a coherent economic community. It has also been given the job of collating the lessons learned from the Asian financial crisis 10 years ago and forging these into a plan for dealing with future crises - a major step in regional co-operation.

'This is an enormous challenge, but I always want to take up a challenge,'' Mr Kawai said during an interview 10 days after he took up his new appointment at the beginning of this month. He is no stranger to challenges, having faced many before while teaching economics in the US and Japan, acting as a consultant to the US Federal Reserve and the International Monetary Fund and serving in government as well as in multilateral institutions.

Multiple roles

A man who wears his considerable academic talents lightly, with no hint of arrogance or condescension, the 60-year-old Kawai-sensei (teacher) is someone who slips easily from the role of professor to elite financial bureaucrat and public administrator. His essentially affable nature, ready smile and soft-spoken demeanour belie a penetrating intellect that is a product of the Tokyo and Stanford University education that he received in economics and statistics.

We talked in his office at the ADBI's spacious headquarters in Tokyo's Kasumigaseki government district - a stone's throw from where Mr Kawai once worked as special research adviser and then deputy vice finance minister for international affairs at the Ministry of Finance. Was he happy to be back in Tokyo, where he also worked as a professor at Tokyo University, and does it make sense for the ADBI to be located so far away from ADB headquarters in Manila, unlike the World Bank Institute, which is located within World Bank headquarters in Washington?

'I don't think it's necessarily a bad arrangement,' he said. 'When I left Manila I felt a bit sad because Manila was such a nice place. I enjoyed being in a development institution located in a developing country. That made a lot of sense. You can get a lot of insight into development issues on a daily basis.' Relations between the ADB and ADBI had been 'up and down', he said, but the fact that he and the previous dean, Peter McCawley, had spent time in both institutions should help to bridge the gap.

The ADBI, which Mr Kawai will head for at least the next three years, was founded in 1997 at the time of the Asian financial crisis. The fact that it is funded by the Japanese government has given rise to suggestions that it might be introducing a national bias into regional research projects. But Mr Kawai rejected this. 'Intellectual independence is key,' he said. 'I do not think the Japanese government would say intellectual credibility should be bent in the interests of Japan, but rather that it is in their best interests to see an Asia-based research institute financed by Japan achieve international credibility and reputable research.'

What is the difference between the ADB and the ADBI, apart from physical location and sponsorship? 'The ADB is operations-oriented but the ADBI focuses on long-term structural issues,' Mr Kawai said. 'At the ADB you need to be conscious that whatever you do, whether in research or other types of work, has to be relevant to ADB operations. Here, what we do needs to be reflected in operations but we can keep some distance in that we can spend time on important issues for Asia, that cannot be resolved in a short period of time through policy operations.

'We focus on research and capacity-building. For research the focus is on long-term, structural issues, while capacity-building is designed to strengthen capacities and skills on the part of developing economies. There are four areas of (interest): poverty reduction; regional cooperation, private sector development and governance. The issue of regional cooperation and integration is highly relevant to all of these. Because of my academic interest in regional cooperation and integration, I would like to focus particularly on this.

'We will look not only at physical infrastructure but also the software component of infrastructure - the surrounding institutional and regulatory environment, governance of infrastructure corporations, the implication of infrastructure for regional cooperation and integration, how infrastructure can reduce the costs of doing business and of international trade. We shall also look at the financing of infrastructure, how Asia's massive savings can be mobilised to finance the potential demand for infrastructure in Asia which the ADB estimates to be US$3 trillion over the next 10 years or US$300 billion a year.'

Does the new dean feel that Asia is ready to undertake this kind of ambitious integration of economies by means of physical and policy linkages? 'Actually there is an increasing demand on the part of developing member countries for regional cooperation in the area of infrastructure,' Mr Kawai said. 'The Greater Mekong Sub-Region programme has been very successful. Initially the ADB had to play a very important role but once this started to go on there is very strong ownership of the programme on the part of participating countries.

'Similar programmes are now developing, such as Bimpeaga - the Brunei, Indonesia, Malaysia, Philippines, East Asean Growth Area (embracing the southern part of the Philippines, Brunei, Kalimantan in Malaysia, plus Java and Irian Jaya in Indonesia). Also, there is the ITM - India, Thailand and Malaysia growth triangle - a sub-regional programme to develop physical infrastructure. In Central Asia there is the Caric programme. For many landlocked countries in Central Asia, to have access to markets - to China, India or to Europe, Russia - they need co-operation, in particular to reach China or Europe.

'The ADBI will identify elements of successful regional cooperation. We focus not only on the physical aspect but also on institutional and regulatory aspects, as in the case of roads connecting one country to another. Different ministries from the respective countries should come to the table and cooperate to make physical infrastructure successful.'

Mr Kawai gives the example of a Vietnamese truck driver driving through Laos and reaching Thailand. Without mutual recognition of driving licences, border-crossing facilitation, cargo inspection, customs clearance and emissions standards, such a journey could be a nightmare.

Is this not a bureaucrat's dream of co-operation that has little relevance to the real world in which Asian business operates? No, insists Mr Kawai. 'One of the advantages of infrastructure development is that it can support a wide array of economic private sector-driven activities. It can reduce business costs, in particular trade cost and that is going to be an important component of our study.' (A recent World Bank study showed that Asia is losing its advantages to other regions in terms of logistical costs because of inadequate infrastructure linkages within countries and across borders.)

The issue of what form regional integration should take in Asia has become something of a political minefield because different groupings of countries have different ideas. Does Mr Kawai believe that the ADBI can afford to insert itself into that debate? 'Well,' he said, 'we will take a look at various initiatives in an objective way and our view is always that it is good for all Asian countries to cooperate. At this point, in the case of East Asia at least Asean is emerging as the hub.

Different groupings

'That is what Japan supports, that is what China supports and Korea as well as India, Australia and New Zealand are also supporting. Beyond Asean, (the question is) whether Asean+3 is a natural group, Asean plus Six or the East Asia Summit is a natural group or even the wider Apec region. This is something we have to see. Perhaps each grouping has its own merit and they are complementary. We are not in a position to promote a particular grouping but we would like to analyse the pros and cons of different groupings and their strengths and weaknesses.'

Mr Kawai described his role as head of the ADBI as being to 'find clearly important fundamental structural issues that Asia is facing and provide the insight into how to approach those fundamental issues'. In fact, he noted, the ADBI has already carried out research highly relevant to Asia's needs under his two predecessors. While dean of the institute, Masaru Yoshitomi did pioneering work on the nature of financial crises after the Asian crisis, while Peter McCawley shifted the emphasis to poverty reduction, governance and private sector development.

Now the spotlight has moved to regional integration, which is in some ways a sensitive area for Mr Kawai. The Asian Currency Unit or ACU that he proposed while heading up the ADB's Office of Regional Economic Integration (Orei) was part of a long-term vision that Mr Kawai shared with ADB president Haruhiko Kuroda for eventually creating a common currency within Asia. But some US officials saw the move as a threat to the dollar while European executive directors at the ADB wondered out loud whether the bank was straying into IMF territory.

Asean+3 finance ministers picked up this particular 'hot potato' and moved it out of the political arena by asking an independent research body in Tokyo, the Institute of International Monetary Affairs headed by former vice finance minister for international affairs Toyoo Gyohten, to study it. The ADB itself is still involved in the study and the hope is to present a report to Asean+3 ministers by the time of their next meeting on the sidelines of the ADB annual meeting in Kyoto in May, Mr Kawai said.

The ACU initiative - constructing a 'monitored index on a daily basis so that policy makers would understand the relative movements of individual currencies relative to the Asian currencies as a whole,' as Mr Kawai put it - was probably ahead of its time. Although welcomed by some policymakers, it appeared to take others in the region by surprise, as well as arousing suspicions outside the region. The ADBI's new dean sees it as part of his job now to help bridge this kind of perception gap.

'What the ADBI can do is to focus on long-term issues of how to narrow various types of gap between developed members of developing member countries and relatively less developed members,' not just monetary affairs. The ADBI can look at 'how countries can adopt common standards in different areas such as trade in goods and services, investment, competition policy and various other types of regulatory issues. If countries have different regulatory structures it is difficult for the economies to be integrated.'

Regional integration is not the only important area of research that Mr Kawai is involved in. He is 'lead managing' a study being conducted by the ADB on Asia '10 years after the financial crisis of 1997'. It is a forward-looking study, he said, and is due for completion in about one year.

'By looking at the lessons of the crisis and crisis resolution and taking into account new developments since the crisis, such as China's rise and India's rise and the intensity of regional co-operation (we can decide) what kind of policy issues are important given that some sort of economic crisis can take place at any time.'

Another Asian crisis?

He said: 'Hopefully another crisis will not come but it is always a possibility - and the region has to strengthen its own capacity to deal with or contain such crises.'

The issue is regarded as being important enough to involve all of the ADB's various research arms, including the ADBI. 'The first objective is to avoid a crisis and if, unfortunately, there is one then if countries are strong and resilient enough they may be able to get over the crisis relatively easily.'

Is this just about building up foreign exchange reserves in Asia or constructing Chiang Mai Initiative-type arrangements for swapping those reserves in times of emergency? 'No,' he said. 'It is much broader, including macro-economic management, strengthening of financial assistance, development of bond markets; strengthening the competitiveness of the real sector, productivity improvement, innovation, and also the social sector.

'At the time of the Asian financial crisis suddenly the incidence of poverty increased - in Indonesia, Thailand and other countries. In the case of Indonesia, even though the government wanted to increase social spending there was no well-defined framework for such spending. There was no credible system for reaching out to the poor. It was very difficult - how to help children who had to go out of school and who had to work. How could we bring them back to school. That process was very difficult because there was no well structured social-protection framework.''

What might possibly provoke a crisis in the future? 'We don't know but what we do know is that (the last one) had very serious implications for economic activity and the social consequences were very serious. It is in the best interest of countries to put macro-economic management right, put the financial system in a strong, resilient position and to continuously improve productivity and competitiveness and strengthen social sector provision.'

The 1997 crisis is being used by the ADB as 'a kind of trigger to address more fundamental issues', Mr Kawai said.

'When I was working for the World Bank between 1998 and 2001 (as chief economist for East Asia and the Pacific region) that was in the middle of the Asian financial crisis and its aftermath. It was a time of crisis response and resolution. In particular, I focused on crisis-resolution, banking sector and corporate sector restructuring and the social sector issues. I interacted heavily with government officials, academics, think tanks of the crisis-affected countries - Thailand, Malaysia, Indonesia, Korea, to some extent the Philippines, and also China.'

That was a very useful exercise, Mr Kawai said - and he intends to replicate it during his tenure as dean of the ADBI.

'One of my objectives is to strengthen networking ties with other think tanks in Asia and also in Europe and North America because they also have an interest in Asia. And of course Asean is a very important player in this context. So I would like to see the ADBI strengthening its relationship with the Asean Secretariat also.'

We were running out of interview time, and my tape recorded out of tape. So, I asked him in closing, what is next for him after the ADBI, where the term as dean runs for three years (although his two predecessors both stayed on for more than four years).

'I am still a professor,' he responded. 'I am taking leave of absence and then I will go back to my university and to teaching.'   - 2007 February 10   BUSINESS TIMES

Singapore's listed real estate market is fastest-growing in the world.

Singapore's Reit market of US$21.6 billion is only second to Japan, which has a Reit market capitalisation of US$46 billion.

The third-largest Reit market is Hong Kong with a market capitalisation of US$8.5 billion, followed by Taiwan (US$1.7 billion), Malaysia (US$1.6 billion), Thailand (US$1.5 billion) and South Korea (US$0.6 billion).

Investors should be overweight on Chinese and Hong Kong property plays, as China's efforts to cool the sector are more than offset by strong long-term growth prospects, an ING Groep fund manager said yesterday.

But Japanese and Australian property stocks, and real estate investment trusts (Reits), should be approached with caution, given rising Australian interest rates and Japan's worsening economic sentiment, added ING's Justin Pica.

'Probably our strongest story in terms of our conviction over the medium term is the China real estate story. . .strong personal income growth, the urbanisation and industrialisation demand, and also lack of alternative investments,' he told a media briefing in Hong Kong.

'The government of China implemented specific cooling measures to clearly control an overheated market. We think those cooling measures have worked and in general will be positive for the market over the longer term.'

Mr Pica said that a share price slide by Chinese developers, by as much as 50 per cent since the end of October, had left some trading at 30 to 40 per cent discounts to net asset value.

The fund manager, part of a team that manages more than US$2 billion in Asia Pacific real estate assets, spoke as the Dutch financial services group launched the ING Asia Pacific Real Estate Securities Fund in Hong Kong.

ING established the fund internally in September, investing cash from its insurance operations. Mr Pica said since then it has outperformed its benchmark, the FTSE EPRA/NAREIT Asia Index, by more than 300 basis points.

While the fund is initially being offered to Hong Kong retail investors and private banking clients in Singapore, ING plans to roll it out into other markets in Asia. ING officials said they expect the fund to raise at least US$200-US$300 million within the first six to 12 months.

Mr Pica, the fund's manager, said some of its top holdings included Hong Kong-listed China Overseas Land & Investment Ltd and China Resources Land Ltd, as well as Sun Hung Kai Properties Ltd and Hang Lung Properties Ltd.

The Hong Kong-based manager said the fund also holds Singapore-listed Reits CapitaMall Trust and CapitaCommercial Trust. -  2008 February 26     Reuters

In Vietnam, DTZ noted that demand for residential properties, which was already growing fast, was bolstered by the recent relaxation in rules for housing ownership, allowing foreign land ownership terms to increase from 50 to 70 years. DTZ said this also encouraged foreign developers to build residential properties there.

In Malaysia, DTZ said take-up was encouraging for high-end condominiums in Kuala Lumpur, with a complete sell-out for several luxury projects. This was supported by the relaxation of rules for foreigners to buy residential properties and the waiver of real property gains tax last April. While monthly average gross rents remained unchanged at RM4 (S$1.25) per square foot, average capital values increased 3 per cent year-on-year to an average RM500 (US$152) psf.

The residential market in Thailand is also expected to recover, as the political situation improves and developers are encouraged to launch projects which have been withheld.

In the office sector, DTZ says demand for office space in Vietnam is expected to continue to be underpinned by limited potential supply. It said that in Vietnam, most potential supply comprises non-prime office buildings, 'which will lead to greater competition for prime office space'. Occupancy remains high, at above 95 per cent, while Grade A rents average US$3.70 psf per month in Hanoi and US$4.37 psf per month in Ho Chi Minh City.

The office market in Kuala Lumpur was also active, with increasing demand by the services, oil and gas, information technology and financial sectors. Together with limited new supply, prime office rents rose 7.8 per cent year-on-year to RM62.65 (US$18.16) psm.

Jakarta also saw office occupancy rates of over 90 per cent. Rents did, however, remain at about US$0.76 psf per month amid fluctuations in exchange rates.

The Bangkok office market was the only one that was subdued, with a negative net absorption for H1 2007. DTZ said this was due to a less favourable operating environment which affected investors' confidence.  - 2008 February 5   BUSINESS TIMES

Outlook Asia: After a solid '07, what's next?
As 2007 comes to a close, the eyes of the Asian property market are elsewhere.

With U.S. real estate in a definite slump over the subprime crisis and prices showing signs of decline in Britain, France, Spain and Italy, property owners and developers in Asia are wondering if such problems will appear in their region. They have not so far, and 2007 was a solid year for residential property in Asia. But only time will tell whether the region has really "decoupled" from the rest of the world market.

The concerns have left some cautious about prospects. And while 2008 looks set to start strongly in the region, many are hedging their predictions or are anticipating a slowdown in the second half.

"The impact of subprime on the real estate market is our concern in the second half of 2008," and the agency is planning to issue an updated forecast in midyear, said Alva To, the Hong Kong-based head of consultancy for north Asia for the global real estate consulting company DTZ.

The normally staid property market in Singapore was the top performer in Asia for 2007. Luxury property values there were up 56.4 percent year over year in the third quarter, according to data from Jones Lang LaSalle real estate, more than double the pace of increase in Beijing, the second-strongest city, where luxury values rose 25.7 percent.  

Singapore's luxury residential performance was driven by strong underlying investor demand attributed to foreign purchasers, local high net worth individuals and, during the first half of the year, en bloc sellers," Glyn Nelson, the Singapore-based head of operations for Asia real estate intelligence services at Jones Lang LaSalle, explained in an e-mail.

Investors took a new look at the city, where two casino projects were under way, and local buyers were heartened by the city's strong financials. Nelson expects that momentum to continue into 2008, citing Singapore as the top pick for the year in terms of capital value gains, followed by Shanghai and Hong Kong.

Tim Murphy, managing director of the real estate investment company Intellectual Property, is not so heartened about the Lion City, however. He says the Singaporean government's new measures to cool the market - delaying plans for public developments and withdrawing plans to let buyers delay home payments - will cut into results for next year.

"We think there are more profitable places to invest in 2008," Murphy said, citing neighboring Malaysia as "a huge success story of 2007." There, the government suspended capital gains tax on property and is encouraging investment from overseas.

In China, the focus continues to be the government, which still is tinkering with property regulations to prevent overheating. Many of its "austerity measures" took effect during the year, with changes in bank-lending policies making it much harder to get mortgages.

"China slowed down quite significantly," said Buggle Lau, chief analyst at Midland Realty. Transactions in hot markets like Shenzhen, just across the border from Hong Kong, were down 20 percent to 30 percent in the second half of the year, compared to the first half. And values in Shenzhen fell 10 percent to 15 percent in the last few months of 2007.

The market probably merited some cooling - prices in Shenzhen, for example, grew 350 percent in the past three and a half years. And so far, the government has managed to curb growth without producing a crash. "A mild correction definitely is good for the long-term development of the property market in China," Lau said.

Beijing's strong performance for the year is probably explained by an increase in luxury apartment values and rents before the 2008 Olympics, but such increases may not last beyond the Games.

In September, the central People's Bank of China and the banking regulator, the China Banking Regulatory Commission, began requiring anyone seeking a second home loan to put down a deposit of at least 40 percent of the property's value and to pay a 10 percent premium on interest.

Edward Cheung, chief executive for mainland China for DTZ, says the policy produced a significant drop in the amount of residential property sold in top-tier markets. In Shanghai, for example, the amount of property sold in October was less than half that sold in June. "Once buyers have taken in what the policy actually means, purchasing confidence has usually returned to the market, and there is no reason why this should not happen this time around as well," Cheung said.  

For once, Hong Kong's property market was pretty stable in 2007. The overall residential market saw gains of about 17 percent, according to preliminary figures from Jones Lang LaSalle, having been up 10.3 percent in 2005 and down 0.4 percent in 2006. Luxury values were up an average of 24.5 percent for the year.

Hong Kong did hit the headlines, though, for setting new records in terms of price. In November, Kerry Properties sold the 7,100-square-foot, or 660-square-meter, penthouse on the 52nd and 53rd floors of its Branksome Crest development in Mid-Levels for 283 million Hong Kong dollars, or $36.3 million. At 40,000 dollars per square foot, it was a record for an apartment in Asia.

Based on Hong Kong's very small supply of residential property, market watchers are predicting a very strong performance. "We have turned maximum bullish on Hong Kong residential, and expect residential prices to rise 50 percent by end-2009," the Merrill Lynch research analysts Keith Yeung, Paul Yau and Kevin Lai wrote in November.

The city's strong fundamentals are the driver, with the economy's rapid growth producing pay raises for the local work force. "Professionals have recently regained bargaining power in the labor market," said Xavier Wong, the head of research for Knight Frank in Hong Kong. "With the middle-class households keen to upgrade their homes, midpriced units worth between 4 million dollars and 10 million dollars are expected to do particularly well."

Property in nearby Macao continues to thrive because of its casino boom. Prices have jumped about 100 percent since 2003. The city has a dire shortage of true luxury development, and international developers are starting to bring higher standards to the market.

Real estate in Japan continues its slow climb out of recession, with the main drivers continuing to be central Tokyo and Osaka, the largest cities. Developers are starting to see signs of opportunity in second-tier cities like Sendai, Fukuoka and Sapporo but they say it is early yet.

Tokyo Midtown, a sprawling project near the trendy Roppongi neighborhood, was the highest-profile new entrant. The project, developed by the Mitsui Fudosan, contains the Park Residences at The Ritz-Carlton, the Tokyo Midtown Residences and the Oakwood Premier Tokyo Midtown residential buildings, as well as shops, restaurants, offices, a medical center and museum.

The luxury villa market took a breather in Thailand in 2007, but not because of subprime problems. The fallout of the 2006 coup that removed Prime Minister Thaksin Shinawatra from power had much more effect, and the uncertainty is expected to continue after the election Sunday in which his allies won a parliamentary majority.

"2007 has been a year of consolidation for Phuket," said David Simister, chairman of the brokerage CB Richard Ellis (Thailand). Prices have shown almost no gain for the year. But, he added, "despite the country's ongoing issues, prices of new developments in Phuket remain solid with no discounting."   - 2007 December 28    INTERNATIONAL HERALD TRIBUNE

Asia as safe haven amid sub-prime debris
Region could benefit as investors reallocate funds from US, Europe

Asia provides a 'safe haven' for property investors as returns decline on US and European assets because of sub-prime mortgage losses, said commercial real estate broker Jones Lang LaSalle.

'The region could be a beneficiary of the fallout as investors reallocate funds from the US and Europe towards Asia-Pacific in search of higher growth opportunities on a risk-adjusted basis,' Jane Murray, Asia-Pacific head of research at Jones Lang LaSalle, said yesterday in a report.

The world's biggest banks and securities firms wrote down US$45 billion of assets this year and cut 10,000 jobs because of the collapse of the market for mortgages made to borrowers with poor credit. Commercial real estate transactions fell in the UK and the US after defaults on subprime pushed up borrowing costs, creating turmoil in financial markets.

Global direct real estate investment in Asia gained 14 per cent to US$54 billion in the first half of the year, compared with the year-earlier period, Jones Lang LaSalle said. Asian deals are about a third of the volumes in the Americas or Europe.

'Although regional investment volumes are still a comparatively low proportion of global direct property investment, interest levels are very high and we foresee the continuation of rapid growth in volumes,' said Ms Murray.

Japan remained the dominant market in Asia for international investors in the first half, accounting for more than half of investment in the region, the broker said.

Capital values gained 8.7 per cent in Japan during the quarter to 3.96 million yen (S$52,075) per square metre.

Goldman Sachs Group bought the building that houses Tiffany & Co's flagship store in Tokyo in August for 37 billion yen, or about 54.45 million yen per square metre, the highest price paid since the burst of the bubble economy in the early 1990s, according to Jones Lang LaSalle.

Average monthly rents for grade A office buildings advanced 3 per cent from the second quarter to 54,882 yen per tsubo (US$150 per square metre), the 13th-straight quarter of gains, Jones Lang LaSalle said.

Grade A office buildings are sites with total leasable floor area of more than 10,000 square metres and more than 800 square metres per floor, according to Jones Lang LaSalle.

The buildings should be no older than 25 years. -   2007 November 14  BLOOMBERG

It's a decade since an asset bubble fed the Asian economic crisis and fears swirl over the US housing market and interest rates, but investors still believe the only way for Asia's soaring property markets is up - at least for a couple of years.

Asian economies are booming, and property is once again the hot subject of dinner conversations from Tokyo to Mumbai, fuelled by cheap credit, cross-border investment and rising incomes.

Policy-makers fear a boom-and-bust cycle where rising real estate prices fuel inflation and force interest rates higher, leaving households and companies loaded with debt and dragging on economic activity.

But at the Reuters Real Estate Summit this week in Singapore, where some residents are seeing their rents jump 50 per cent overnight, property executives effused about India, despite a doubling in urban land prices since foreign property investment was ushered in two years ago.

Japan also appears to be still hugely popular, although average Tokyo office prices have leapt 25per cent in last two years.

And investors believe government cooling measures will bring order to China's market, while failing to stem a hunger for homes among the expanding and increasingly affluent middle class.

Justin Chiu, executive director of Hong Kong property giant Cheung Kong (Holdings), said the prospect of ever higher prices was driving Asia's notoriously sentiment-driven markets. 'If there are no bubbles, you don't drink beer. It's just plain water and there's no incentive to invest,' he said. 'Of course, if you see too many bubbles, you stop pouring.'

Cheung Kong expects mainland China to account for a third of its property earnings by 2010 from about 18 per cent now.1

The Asian continent saw some US$94 billion of property investment in 2006, up 43 per cent on the previous year, but barely one-seventh of the global total. And investors show no sign they will stop the flow.

Morgan Stanley said last week it had earmarked for 60per cent of a new US$8 billion fund for Asia and Goldman Sachs has raised about the same amount in a couple of funds, according to a source familiar with the matter.

ING Real Estate is raising two US$1 billion funds for Asia, and private equity firm Blackstone is raising US$10 billion to spend globally.

But some market watchers wonder where all the money will be spent, and if rising values will curb investment returns.

Asian commercial property is tightly held by families and private companies, so Peter Barge, Asia chief executive of property consultants Jones Lang LaSalle, believes many investors will have to take on risky development projects. 'There's a lot of money on the books, but people are scratching their heads about what to do with it,' Mr Barge said.

Japan is a perennial favourite in Asia because its US$1.27 trillion of investment-grade property offers huge choice.

Kurt Roeloffs, Asia head for Deutsche Bank's property unit RREEF, put it at the top of his list followed by China and India. RREEF, one of the world's biggest property fund managers, plans to spend around 30 per cent of its future private equity funds in Asia, Mr Roeloffs said on Monday. China is drawing Hong Kong developers such as Cheung Kong as well as funds run by ING Real Estate, AETOS Capital and Invesco.

But the new flavours of the month are India and Vietnam, which both rank among the most opaque property markets in the world but promise internal rates of return of 25-30 per cent.

Forecasts that Indian property prices have surged too fast and could drop anywhere between 10 and 40 per cent are brushed aside on the grounds that an outsourcing boom is enriching a middle class couped up in crumbling homes built decades ago.

'India has huge potential,' said Seek Ngee Huat, head of the GIC Real Estate. An investment company of the Singapore government, and one of the world's biggest property investors, GIC is eyeing developing markets including Russia and Turkey, while cautious about London offices because of steep price rises.

Mr Barge believes Asia has at least two or three years more to run on the upward swing of its property cycle, saying: 'Mother gravity is always there.'

Mr Seek was wary that defaults on US subprime mortgages could infect the whole financial system.

'There are certainly financial risks being built up,' he said.

Meanwhile, Liew Mun Leong, chief executive of South-east Asia's biggest developer, CapitaLand Ltd, which is launching funds for China and India this year, acknowledged that property investors may not have the best crystal balls.

'It's funny but we in the property industry can always predict when the market will turn up, but we can never say when it will turn down,' he said. -- Reuter    2007 June 28

Japan, S'pore property luring private equity

Japan and Singapore's improving returns on property are helping to lure private equity to Asia as capital flows out of Europe and the US, said Charles McKinley from Franklin Templeton Investments.

'Private equity players around the world are actually seeing the Japanese market as being a very fertile ground to have very high' return on investments, said Mr McKinley, Templeton's global real estate portfolio manager. 'They are actually experiencing huge capital flows out of Europe, out of the UK and even out of the US into countries like Japan, Singapore.'

More than 100 real estate funds may raise a record US$69 billion this year as investors seek better returns than stocks and bonds provide, according to Private Equity Intelligence Ltd. Morgan Stanley raised a record US$8 billion for a real estate investment fund last month, after announcing in April it was buying All Nippon Airways Co's 13 Japanese hotels in the country's biggest real estate deal.

Japan's economy is having its longest expansion since World War II, while Singapore expects its economy to grow as much as 7 per cent this year, buoyed by financial services and construction.

Foreign investors are buying Singapore office buildings at a record pace as rents surge after corporate tax cuts lured investment banks including Morgan Stanley and Merrill Lynch & Co.

Overseas private equity groups and funds have spent $2.4 billion to buy office towers this year, 70 per cent of all such transactions in Singapore, exceeding the $1.9 billion of foreign acquisitions for the whole of 2006, according to real estate consultant CB Richard Ellis.

'Frankly, pan-Asia is the most exciting property region in the globe,' Mr McKinley said . 'Asia is the place to be for property in the next few years. - Bloomberg   2007 July 2

Asian property derivatives take root

Property  derivatives are taking root in Hong Kong and Australia and will soon debut in Singapore and Japan, according to broker GFI, but markets will not prosper until banks create products to draw retail investors.

Some global investors and developers would relish having the new products to hedge their positions in Asia's notoriously volatile markets, Steve Moore, head of Asia property derivatives at GFI, said yesterday.

But others might find the markets just too risky.

'In Asia, where a market can drop 50 per cent in a year, or double as it has in Singapore, some people might stay away from derivatives and others will be tempted in,' Mr Moore said in an interview during the Reuters Real Estate Summit in Singapore.

'But the market won't take off until we unlock the retail side, and then we'll see it grow infinitely.'

Following the British market's lead, Asia's fledgling property derivatives are essentially a two-way bet based on a property index.

One party agrees to pay a benchmark interest rate plus a spread after a certain period, while the counterparty will pay the property returns indicated by the index.

Asia's first property derivatives trade was unveiled in February - a Hong Kong deal between Dutch bank ABN Amro and Sun Hung Kai Financial based on a new residential index run by Hong Kong University.

Mr Moore said that six investment banks had received licences to be counterparties in property derivatives trades in Hong Kong, and 'a few are waiting in the wings'.

The next stage in the market's development would be for retail banks to use property derivatives to package investment products for 'the man in the street'.

'We get calls from people asking whether they can hedge their 17th storey apartment in Happy Valley,' Mr Moore said of a Hong Kong district. 'I have to say come back in three years.'

Advertised as the easiest way to obtain pure property exposure to a market, property derivatives have been pioneered in Britain, where the market quadrupled in size to nearly 3.6 billion (S$11.06 billion) last year.

Mr Moore said that a couple of over-the-counter deals had been done in Australia, and GFI was working on three - one on Sydney office exposure, one on residential returns, and one based on a general Australian property index.

GFI is working with the National University of Singapore to set up a residential index, and Mr Moore expected the first derivative deal to be made by the end of 2007.

And in Japan, banks are in discussions to start up a derivatives market and government collated property data could be used to form a workable index, he said. 'Japan, maybe along with China, is the one everyone wants,' Mr Moore said.

Japan's property market has been heating up for the last three years, with Tokyo office prices jumping 25 per cent since 2005, thanks to an influx of foreign funds competing with domestic real estate investment trusts as well as institutional investors.

China is also drawing global names, such as Deutsche Bank's property investment unit RREEF, ING Real Estate as well as Invesco.

Property derivatives enable investors to gain exposure to a property market quickly and with none of the associated transaction costs such as stamp duty.

They can be used as a hedging tool - by property firms and investors. - Reuters    2007  June 28

Asia-Pac home prices roughly in line: IMF
Most countries not experiencing unusually rapid home price hikes

The rapid run-up in housing prices across the Asia-Pacific of late may continue for some time yet, but by and large, prices have not gone grossly out of line with economic fundamentals, according to an International Monetary Fund (IMF) study.

Housing price data in 12 regional economies does point to pockets of 'potential concerns', but elsewhere the price rises are broadly in line with income gains, says a chapter on housing prices in the IMF regional economic outlook for Asia and the Pacific.

'While housing prices have been rising more rapidly than inflation, most countries in Asia are not experiencing unusually rapid housing price hikes,' the report says. 'For the 12 economies for which data are available, real housing price increases averaged 4.5 per cent during 2002-06, but the median was substantially lower, at just over 3 per cent.'

Three countries - China, India and New Zealand - saw real annual price rises of more than 8 per cent over the period, it notes. And in some cases - Hong Kong, Taiwan and Thailand - recent housing price increases follow extended periods of declines.

'In such cases, it is plausible that any rise in housing prices may be a welcome signal for increased investment in the sector.'

The study also found that housing prices have outstripped income gains in about half the cases, but have done so to a significant degree only in Australia and New Zealand.

And housing prices have been relatively tame compared with other asset prices, the report says, adding that apart from Australia and New Zealand, annual housing price hikes have been dwarfed by domestic stock market gains during 1999-2006. 'Of course, this alone does not prove that housing price gains are not problematic, since many equity markets have been quite buoyant.'

Across the region, Australia and New Zealand are the clearest cases where housing price hikes appear large, not just in real terms but also relative to rents or household incomes, it says. In several economies - notably China, Hong Kong, India and Korea - localised indicators point to significant price increases.

Asia's housing markets will likely remain on policy-makers' radar screens for some time, the IMF says.

'Housing prices have been rising more rapidly than inflation, and this may continue for some time as regional incomes grow and financial markets deepen.

'Moreover, as global liquidity remains abundant, the potential for large run-ups in credit and asset prices to affect overall inflation or financial or macroeconomic stability cannot be ignored.'

But at the same time, it is important to distinguish between potentially problematic housing price rises and those that are more localised or can be explained by real supply and demand factors, the report adds. -  by Anna Teo   SINGAPORE BUSINESS TIMES    2007 April 14

Value in Asia real estate

Asian real estate offers better value than property stocks because the region's equity markets are still 'vulnerable', said Marc Faber, an investor who predicted the US stock market crash in 1987.

'I'm optimistic about Asia and emerging markets, but the stock markets at the present time are still vulnerable,' said Mr Faber, who oversees US$300 million in assets at Hong Kong-based Marc Faber Ltd. 'As an asset class, real estate in Asia presents tremendous opportunities' as 'urbanisation gets underway'.

The Morgan Stanley Capital International Asia Pacific Index tumbled 3.5 per cent the week ended March 2, the most since July, sparked by the biggest plunge in Chinese stocks in a decade.

Asia's economic expansion is expected to drive demand for real estate, attracting interest from investors drawn to rising rents, Mr Faber said in an interview.   East Asian economies, including China and India, are expected to expand 4.4 per cent this year, compared with 2.7 per cent in the US and 2 per cent in Europe, according to the Asian Development Bank.

Rentals for office space in Singapore's central business district rose to US$644 per square meter (US$60 per square foot) at end-2006, still lower than the US$692 landlords were fetching in 1996 before the Asian financial crisis, according to Leslie Chua, head of research at Jones Lang LaSalle in Singapore.

In Hong Kong, rents reached US$1,105 in 2006, lower than the high of US$1,237 in 1994.

Mr Chua estimates rents in Hong Kong will rise 10 per cent this year, and jump 50 per cent in Singapore. Jones Lang LaSalle also estimates demand for Singapore office properties outstrips supply by five times.

'Property is fast becoming an alternative asset class like gold,' Mr Chua said. 'We do see more upside to property prices and rents because people are becoming more confident.'

Hong Kong billionaire Li Ka-shing's Cheung Kong (Holdings) Ltd is among the biggest developers in both cities. CapitaLand Ltd, South-east Asia's biggest developer, has also expanded its real estate projects to China and Australia.

To be sure, gains in property prices have trailed those in stocks. The value of Singapore's office buildings rose 17 per cent in 2006, according to government data, compared with the 65 per cent gain in the city-state's property stock index. Mr Faber says the smaller gain offers opportunities for investors.

'If you compare Singapore to an equal city in the western world, like London, New York, Singapore is not expensive, it's reasonable,' Mr Faber, the publisher of the Gloom, Boom and Doom Report, said Monday. 'They are not in a bubble stage like they were in 1996 and 1997.'

China and Vietnam, two of Asia's fastest-growing economies, are also attractive real estate markets, Mr Faber said. Vietnam's economy, which expanded 7.4 per cent annually in the past decade, is expected to grow at least 8 per cent a year in the next 10 years, according to government forecasts. China's economy, which expanded 10.7 per cent

in 2006, the fastest since 1995, has grown an average of 9.2 per cent in the past decade.

In the past month, Citigroup Inc's property unit raised US$1.29 billion for an Asian real estate-related fund, and Prudential Plc also plans to invest as much as US$1 billion in the region's property market. Gome Group, owned by China's richest man Huang Guangyu, teamed up with Pacific Star real estate group to invest US$800 million in the country's property market.

'Stock markets go through cycles, there's up and down and this leads to speculation and volatility,' said Pietro Doran, who manages US$650 million in real estate at Seoul-based Doran Capital Partners. 'In the long term, for real estate, it's more steady.'

Mr Faber and Mr Doran were speaking at the Asia Public Real Estate Association forum in Ho Chi Minh City, Vietnam. - Bloomberg     2007 March 14

Global force

China's equity market crash last Tuesday woke many people up to the Middle Kingdom being an important rising power not only in a political perspective, but also in the financial world.

Just stepping into the second day of trading after the week-long Lunar New Year break, the mainland market plunged nearly 9 percent without any solid reason. It was the sharpest drop in a decade.

What was more shocking was that the impact of the massive sell-off traveled way beyond Asia to the European markets, then to the United States, rattling investors' confidence in the world's largest equity market.

The US benchmark Dow Jones Industrial Average plummeted as much as 546 points last Tuesday alone - the most since the first trading day after the September 11, 2001 terrorist attacks.

The Dow dived 416.02 points, or 3.29 percent, for the day, wiping out about US$626 billion (HK$4.88 trillion) in market value.

For the first time in history - to the surprise of many - when China sneezed, the world including the US market caught pneumonia.

Many believe the condition will linger on for some time as global markets have enjoyed a long bull run without any major adjustments.

A correction for many markets was overdue, but this is not expected to be the end of the bull market on the back of solid economic growth supporting decent corporate earnings.

In China's case, its Shanghai Composite Index had a run-up of 130 percent last year. Even with the plunge last Tuesday, the market was still up 52 percent from a year ago.

"The US market always has an impact on global markets, but we have never [before] seen any incident in which the China market took a toll on the US market," says Credit Suisse (Hong Kong) head of China research Vincent Chan.

"This is the first time in history that China [has moved] the US market.

"The mainland shares were not cheap, and a correction may be due. But a sell-off in the A-share market should not topple the US shares as the A-shares are traded in a close market, meaning the liquidity is contained."

Bratin Sanyal, ING Investment Management (Asia Pacific) head of Asian equity, says China's importance in the world financial market is the key for the phenomenon.

"China having impact on global markets is not a surprise," Sanyal says. "China exports to these markets, China buys from these markets. China has increasing share of the global economy, and there is the Chinese propensity to acquire foreign assets increases. China is acquiring more and more US dollar foreign reserves. China clearly will have an impact on the world.

"This is the first time the China market moved the world, and this will not be the last."

Not everyone concurs. Frank Gong, chief China economist at JPMorgan, says even though the predictability of the China stock market for the economy is expected to improve over time, at this stage he is cautious about jumping to conclusions on economic growth based on the performance of stocks in China.

"Blaming the global sell-off on the A-share tumble is a far-stretched argument.

"The A-share market is a highly inefficient market, which has not been a good leading or lagging indicator of the Chinese economy whatsoever," says Gong.

The problem for the global bourses, including those of Shanghai and Shenzhen, lies with excess liquidity, which has pushed international markets to vulnerable levels.

The Qualified Foreign Institutional Investors program of the mainland government, which allows approved foreign institutions to invest in the A-share market with limited quota, has played a modest part in the A-share market boom.

The total quota allowed for application by foreign institutional investors was raised to US$10 billion in 2005. The approved quota has already reached US$9.945 billion, meaning the total quota is close to being fully used.

It is estimated that investment under the QFII program in the A-share market added up to 97.1 billion yuan (HK$97.9 billion), which accounted for a mere 3.88 percent of the combined market valuation of Shanghai and Shenzhen bourses as at the end of last year.

Foreign funds, however, account for the second largest segment of institutional investors in the A-share market after local funds.

Many market watchers believe QFII is unlikely to be raised anytime soon as the domestic markets remain awash with liquidity.

Meanwhile, liquidity in the global markets seems to be shrinking as unwinding of carry trades in the wake of rising risk aversion continues, which is indicated by the rising yen over the past several days.

Under such a scenario, volatility in global markets may continue.

Several strategists point out that last week's global equity sell-off is best seen as a sudden increase in risk aversion, rather than reflective of troublesome fundamentals.

"The sell-off is best regarded as the result of a general increase in market risk premia from exceptionally low levels," says Simon Hayley, senior international economist for London- based consultancy Capital Economics. Although the rebound in risk premia looks large by recent standards, their levels remain low by historical standards, according to Hayley.

"This suggests there is plenty of scope for a further sell-off as risk premia rise further," he says.

The correction in global markets may continue a little, but is unlikely to reach the level of sell-offs in May 2006 and April 2004, say strategists.

Some see the sell-off as a long- overdue correction, not the harbinger of a prolonged bear market or a new global downturn.

"While increased risk aversion may still have some room to go, we think the correction is unlikely to turn into a serious meltdown," says Citigroup economist Hak Bin Chua.

Increased risk aversion means global investors will be focusing more on negative news, says Lehman Brothers analyst Mingchun Sun.

According to Sun, causes for worry include the recent rise in oil prices, the meltdown in the US sub-prime mortgage market, recent comments by former US Fed chairman Alan Greenspan that the US economy could fall into recession later this year, and geopolitical concerns over Iran.

Although the sell-off may have taken some profits away from investors' pockets, it was only a mild erosion compared to the strength of the bull run this past year.

"We see no reason to adjust our economic forecasts," says Chua. "The current sell-off still leaves markets significantly higher than a year ago."

Despite the sell-off, ample liquidity is still floating in markets around the world, and economists see a positive global economic outlook.

"Asia's growth prospects remain intact," says Chua. "Liquidity moreover ample, while concerns over US growth or inflation are certainly not as deep as in the May sell-off last year."

Emerging markets, especially those in Asia, should not worry about the threat of capital flight.

"Contained risk of US rate hikes, benign global economic growth and an improving inflation environment in emerging Asia should limit the threat of massive capital flight, not just from equity but also the local currency bond market," says Chua.

Investors should not be too surprised by the sharp decline in US equities, according to Standard & Poor's chief investment strategist Sam Stovall.

He says S&P 500 posted positive performances in each of the last eight months, and it was on the way to recording its ninth as of Monday evening.

"This string of uninterrupted strength is less common than investors might think," Stovall explains, adding the US market, while recently over- bought, continues to retain strong fundamentals.

"Longer term, S&P's Equity Strategy Group believes the underpinnings for equity price advances remain." Investors in Asian equities markets should expect further near-term underperformance, especially in high- beta markets like Malaysia, according to Standard & Poor's strategist Lorraine Tan.

"We regard the sell-off as healthy and anticipate regional markets will stabilize as they are nearing fundamentally supportable values," she says.

Tan expects more downward consolidation for A-shares as they remain overvalued.

Stovall says that while the long- anticipated and much-needed correction appears to be at hand, once the dust settles a clearer array of buying opportunities may emerge.

"We think it will be a short-term correction," Sanyal says. "Whatever needs to happen will be playing out fairly soon. It's not something that's going to last for months."

Sanyal believes the China markets may fall some more in the near term. If the correction is too steep, the contagion will not be contained in Asia - the US, European and Japan markets will all feel the knock-on effect.    -  HONG KONG STANDARD    2007 March 5

Private investors flee stocks to safety of cash
Share investments also supporting their household finances: report

2007 March 1 (LONDON) - Private investors took almost £11 billion (S$33 billion) out of the stock market in the past year, a study showed this week.

Retail investors sold a net £10.9 billion worth of stock in the 12 months to end of January, according to Capita Registrars' 'private investor watch' report.

They also earned close to £6 billion in dividends, with the total £16.9 billion banked by them equating to 650 per British household.

The global market rout the past two days - triggered after China's main index, the Shanghai Composite, plunged on Tuesday amid fears that the Beijing authorities would crack down on stockmarket speculation - could lead to another wave of selling by private investors.

The Capita report showed they are already continuing to leave the stock market.

Director John Roundhill said: 'We are still seeing net selling and the amount of buying is in decline too.

'Investors seem nervous of shares at present - perhaps anticipating the market is close to its peak.' However, Mr Roundhill said there was no evidence to suggest that private investors are churning their portfolios more than in the past.

He attributed the sell-off to investors redeeming their holdings to bolster household finances - and retreat to the relatively rosy returns available on cash deposits.

'The last year has been one of the weakest on record for consumer borrowing,' he said.

'At the same time, the stock market has been strong, reaching levels not seen in sixyears, and phenomenal takeover activity has seen a number of private investor favourites, such as BAA, leave the market.

'It seems investors have been looking to their share investments to support their household finances.'

He added: 'There may also have been some switch from shares to cash deposits. Savings rates have risen on the back of the Bank of England's three increases in base rates; cash investments are more attractive than they have been in several years.'

The value of private investors' holdings has fallen by just £1.5 billion to 202 billion over the past year, on account of the stockmarket rally. But they have cut their share of FTSE 350 companies to 11 per cent from 11.4 per cent 12 months earlier.

Retail investors were net sellers of shares in every two-month period, other than August and September when they bought a net £2.6 billion worth of stock.