ASIA  

 


Property MARKETS

 

 

 

 

 

 


Why Asia?

  

Those of you who are institutional investors from the west will be interested in the articles we've gathered at this site - Asia 101.  

Hongkong Land is one of Asia's leading property investment, management and development groups with premium commercial and residential property interests across the region. The Group owns and manages some 450,000 sq. m. (five million sq. ft) of commercial space in Hong Kong that defines the heart of the Central Business District, while in Singapore it has been instrumental in the creation of the city-state's new Central Business District at Marina Bay. The Group develops premium residential properties in a number of cities in the region, principally in China and Singapore where its subsidiary, MCL Land, is a significant developer.   Hongkong Land is listed on the London Stock Exchange.

Asia's rich are young

Millionaire tally in Asia set to double in 5 years
CLSA report projects 2.8m individuals with US$1m or more in investable assets

The number of millionaires in Asia is likely to more than double in the next five years as the region continues to grow, fuelling a surge in spending on luxury goods, travel and hotels, a new report suggests.

Asia, excluding Japan, is already home to some 1.2 million people with US$1 million or more in investable assets, not counting their main residence, according to estimates by CLSA in a report published yesterday.

The number of such high net worth individuals is projected to rise to 2.8 million within five years, at an average growth rate of about 19 per cent a year over the period, CLSA said.

Their combined wealth is expected to rise even more quickly, by an average of 23 per cent a year, to reach some US$16 trillion by 2015, from US$5.6 trillion at the end of last year, the report said.

'The forces for wealth creation are extremely favourable for Asia over the coming years,' said Amar Gill, head of special projects research at CLSA and author of the report.

'The economies are growing faster than any other region in the world. Savings ratios are high and appreciation is a big driver of wealth. As Asia gets richer, the surge in wealthy Asian spending power will become a multi-decade theme.'

The rising wealth across the region will lift the fortunes of businesses in various sectors, including high-end retail, cars, property, leisure and gaming, travel, hotels, healthcare, pharmaceuticals and asset management, CLSA said.

Among the companies that it expects to benefit from the anticipated surge in spending are Hong Kong-listed Prada, L'Occitane and Parkson Retail Group, as well as Genting Singapore and OCBC Bank here.

Unsurprisingly, China is expected to contribute the biggest part of the increase in wealth for Asia, helped by its rapid economic growth and a strengthening currency that CLSA forecasts will rise by some 5 per cent a year against the US dollar.

'Together with Hong Kong, it will make up over 60 per cent of our estimated increase in high net worth individuals' total wealth in the region,' the report said.

India, the next biggest source of wealth creation in the region, is expected to contribute about 15 per cent of the increase in wealth controlled by Asia's rich over the next five years, while the remaining countries are projected to contribute the rest.

The growth in the size of their collective fortune, measured in US dollars, is also expected to be boosted significantly from the appreciation of most Asian currencies against the US dollar - at some 4 per cent a year, on average, according to CLSA's forecasts.

As a result, the projections for growth in number of the region's wealthy are highly sensitive to movements in exchange rates; if Asian currencies stayed flat against the US dollar, the growth in the number of US dollar millionaires in Asia and their wealth over the next five years would be reduced by over one-third, the report said.   --  2011 September BUSINESS TIMES

Tally of Wealthy Asians Overtakes North Americans
Shift of of wealth could fuel investment in art, wine, sports from Asia: report

The number of Asians with at least US$100 million in disposable assets overtook North America's tally for the first time as the world's 'economic centre of gravity' continued moving east, Citigroup's private bank said.

Mr Li: Asia's richest man has a net worth of about US$24.8 billion

There were 18,000 'centa-millionaires' in South- east Asia, China and Japan at the end of 2011, compared with 17,000 in North America and 14,000 in Western Europe, the bank said yesterday in The Wealth Report 2012, published in partnership with Knight Frank LLP.

The world economy's centre of gravity has moved from the middle of the Atlantic Ocean in 1980 to a point near the Suez Canal today, the report said, citing calculations by Danny Quah of the London School of Economics.

The International Monetary Fund in January cut its forecast for 2012 global growth to 3.3 per cent, while saying the 27 countries of developing Asia may grow by 7.3 per cent.

'The number and concentration of centa-millionaires accentuates the trajectory of current global wealth flows,' James Lawson, director at Ledbury Research, said in the report. 'Trends seen in this wealth bracket are likely to be replicated in lower wealth tiers in years to come.'

Li Ka-Shing, Asia's richest man, had a net worth of about US$24.8 billion, according to the Bloomberg Billionaires Index ranking the world's 20 wealthiest individuals.

Mukesh Ambani, chairman and managing director of India's Reliance Industries Ltd, ranked second with US$23.6 billion.

The shift of wealth to the east may fuel investment in art, wine and sports from Asia, according to the report. Greater interest in art investments was expressed last year by a net 32 per cent of the region's holders of more than U$25 million, and interest in wine rose 29 per cent

'When it comes to investments of passion, it seems that Asia-Pacific could be the region to watch,' the report said. 'At a time of turmoil in the markets, art, wine and sport look like steady investments, routinely outperforming indices such as the FTSE 100.'

Valuations of the Indian Premier League (IPL), the country's domestic cricket franchise, also show increased interest in sports, the report says.

When the first eight IPL teams were sold in 2007, to businessmen including Mr Ambani and Bollywood actor Shah Rukh Khan, they raised a combined US$750 million, according to the report. When two additional teams joined in 2011, they brought in a total of more than US$700 million.

Other Asians investing in sport include Tony Fernandes, chief executive officer of Malaysia's AirAsia Bhd, who bought a 66 per cent stake in English soccer's Premier League club Queens Park Rangers in August. He is also involved in Formula One as the head of Team Lotus.

China will pass the US to become the largest economy by 2020 and will be overtaken by India in 2050, according to Citigroup research in the report.

In 2010, the number of centa-millionaires in Southeast Asia, China and Japan was 16,000, the same as in North America, and ahead of 13,000 in Western Europe, Grainne Gilmore, head of UK residential research at Knight Frank, said in an interview from London on March 26. Asia's tally will rise to 26,000 in 2016, followed by 21,000 in North America and 15,000 in Western Europe, the report predicts.

There's a wide wealth disparity in countries such as India and China where the absolute number of millionaires is large, Debashish Duttagupta, head of investment for Asia-Pacific wealth management at Citigroup, said in a Bloomberg Television interview in Hong Kong yesterday. As a percentage of the population, the wealthy are a small fraction in these countries, he said.

'Which is why Asia is likely to remain one of the strongest growing wealth regions in the world for some time to come,' he said. --  2012  March 29     Bloomberg  BUSINESS times

Six of the 10 cities worldwide that most appeal to wealthy individuals as places to live and invest will be located in Asia within a decade, according to research that highlights how the region is rapidly closing the gap with the west.

The increasing appeal of Asian cities reflects the region’s strong economic growth rates relative to western markets, as well as high employment levels, lower taxes and “liveability” – their good education systems and infrastructure.

“When compared [with] other regions, Asia continues to be an attractive location for global talent, as it offers good job opportunities as well as a relatively easy environment for family relocation”. 

The yearly report  by Citi Private Bank and Knight's Frank reviewed the attitudes of wealthy individuals based on a survey of 160 of Citi’s global wealth advisers. Their views represent about 5,000 investors in 36 countries who are each worth more than $100m on average.   - 2011  April   FINANCIAL TIMES

Global shift

-- 2011 June 13

 

Hong Kong and Singapore most favoured locations for MNC's

Hong Kong and Singapore have become the top two business locations in the world - beating Western cities such as London and New York - as multinational corporations seek their fortunes in Asia.

A new study by CB Richard Ellis (CBRE) yielded these findings. The property consultancy tracked the office locations of 280 of the world's largest corporations, and found that 68.2 per cent of the companies had a presence in Hong Kong.

Singapore was a close second with a tally of 67.5 per cent, and Tokyo was third with 63.9 per cent.

In fourth position was London, with a score of 63.2 per cent. Shanghai rounded up the top five with 61.4 per cent.

London was the only Western city in the top-five league. Renowned cities Paris and New York were 10th and 11th respectively.

'As future global economic growth is expected to be fuelled by emerging markets, particularly in Asia, cities like Hong Kong, Singapore and other large Asian centres are being viewed as key business hubs for exploiting that anticipated growth.'

Hong Kong has gained importance as a key gateway to China. Its equity market has attracted several major listings, and there was even talk at one point that banking giant HSBC would move its headquarters to Hong Kong from London.

Businesses have found it necessary to maintain a presence in Hong Kong even as office rents in the city soar. According to a separate CBRE report in May, the average prime office rent in core central Hong Kong hit HK$120.50 (S$18.79) per square foot (psf) per month in the first quarter, up 8.5 per cent from the previous quarter.

In contrast, the average prime office rent in Singapore was $8.60 psf per month in Q1, reflecting a quarter-on-quarter rise of 3.6 per cent.

'Singapore's ranking attests to the quality, quantity and competitive cost of Singapore's office space,' said CBRE research head (Singapore & Southeast Asia) Petra Blazkova.

Singapore is the top choice for companies in the industrial goods and services sector. It is also one of the top five locations for companies in the media, and banking and financial services industries.

While Asian cities were more popular for businesses in general, Western cities had their strengths. For instance, New York and London were the top markets for banks and financial services companies.

The role of some Asian markets could change as rents and labour costs increase. There could be a 'polarisation between top-tier Asian cities - which will only become more prominent in a global context - and second-tier Asian cities, which will provide low-cost locations for corporates'.    -   2011 July 21   BUSINESS TIMES  

In any event, you should have followed my suggestion to get in on-the-ground level of Hutch Ports.  The group is the largest ports operator in the world  (think Panama Canal, that is one of the group's management accounts) with experienced global management team and decent cash flow.   The entity went public as a Business Trust in Singapore this year and has already paid a dividend to their investors.      

HPH Trust hold port assets in Hong Kong and Shenzhen, China. It is sponsored by Hutchison Port Holdings, a subsidiary of HWL.

  • Largest global IPO to date in 2011 - $5.5 billion USD
  • According to data provider Dealogic, the IPO is the largest globally so far this year, and has boosted the IPO volume on Singapore Exchange (SGX) to more than 17 times that seen in the same period last year.
  • There was around 3.8 billion units under the global offering, and another 1.6 billion units for cornerstone investors.

Foreign funds have been the main buyers of the stock, said UOB-Kay Hian executive director Chan Tuck Sing. 'This could partly be due to its parentage,' said Mr Chan, referring to HPH's honcho Li Ka Shing. '   

A Business Times analysis earlier also noted that while HPH Trust offers fairly attractive yields - with a forecast seasonally annualised DPU for 2011 at 45.88 HK cent - the trust is not obligated to make minimum levels of payout as the real estate investment trusts (Reits) do.

Reits must pay out at least 90 per cent of their distributable income to unitholders to qualify for tax transparency on the amount they pay out.

The hefty IPO was widely seen as a coup for Singapore, which had established perimeters for the listing of business trusts ahead of long-time competitor, Hong Kong, where HPH's business is based.  

-- 2011April 14   BUSINESS TIMES

HPH Trust posts HK14.3cents DPU
Reports net profit attributable to unitholders of HK$653.7m for Feb 25 - June 30

Hutchison Port Holdings (HPH) Trust posted a net profit attributable to unitholders of HK$653.7 million (S$101.2 million) for the period Feb 25 (when HPH was constituted) to June 30.

It also announced a distribution per unit (DPU) of 14.3 HK cents.

Compared to the forecast net profit of HK$577.6 million in the trust's initial public offering (IPO) prospectus, the actual profit figure is 13.2 per cent higher. This works out to earnings per unit of 7.51 HK cents.

Including minority interests, net profit was HK$1 billion, 10 per cent higher than the forecast HK$915.8 million.

Although the results announced yesterday - its first since its listing on March 18 this year - were for the period Feb 25 to June 30, its operating activities were recorded from March 16 onward because the acquisition of the assets and business undertakings of its initial portfolio was only completed on March 15.

Operating profit for the period was HK$1.23 billion, 4 per cent more than had been forecast for the same period.

Revenue and other income for the period stood at HK$3.39 billion, 3 per cent lower than the HK$3.49 billion forecast in the prospectus.

Container throughput at Hongkong International Terminals (HIT) and Yantian International Container Terminals (Yantian) - which are in the trust's portfolio - came in 2.1 per cent and 2.6 per cent below forecast.

This was attributed to 'throughput growth being weaker than expected, particularly in the Europe and US trade lanes', the trust said in a statement yesterday.

On a year-on-year basis, however, the trust saw throughput for HIT and Yantian up 4.6 per cent and 2.1 per cent, respectively.

Yesterday, HPH Trust's unit price closed 3.9 per cent down, with 52.4 million units changing hands, from 76.5 US cents to 73.5 US cents before the release of the results.

A reason for its price downtrend has been market worries over weak volume growth and the trust's exposure to the weak US dollar.

A report by UBS Investment Research that was issued on Monday gave the trust a 'buy' rating with a target price of US$1.10.

'We find current yield attractive at more than 8 per cent in 2012E, while we believe it is not likely for dividends to miss although volume missed,' the report said.   -- 2011  August 4    BUSINESS TIMES

HPH Trust: More than the sum of its ports?

It is not always true that bigger is better, and Hutchison Port Holdings Trust spent last week finding that out first-hand.

The region's largest ever initial public offering (IPO) went on its roadshow amid a great deal of scepticism, as analysts and market-watchers fell over themselves to list the number of reasons the IPO was more of an IP-no.

These had ranged from remote reasons such as a certain sunglass-wearing dreadlocked figure whose country has sneezed all over equity markets in recent weeks, to the more immediate issue of the trust's distribution per unit (DPU) being quoted in Hong Kong dollars.

To be sure, the choice of currency is not nit-picking, as the Hong Kong dollar is pegged to the US dollar. Between 2007 and the start of this year, the HK dollar has depreciated against the Sing dollar by 16.8 per cent. While it is little consolation, it is worth noting, however, that all three shipping trusts in Singapore declare their distribution in the beleaguered US dollar.

Much has also been made of how the trust's expected yield of about 5.9 per cent for 2011 (based on the expected offer price of US$1.01) pales in comparison to that of the shipping trusts', which started out offering yields in the neighbourhood of 8 per cent.

While both businesses involve water in one way or another, that is where the grounds for comparison end. Shipping trusts have come undone by counterparty risk lately, with charterers threatening to default or handing a vessel back to the trust several years early and leaving it at the mercy of the spot market.

These charterers, unlike the large liners that frequent Hutchi-son's ports in Hong Kong and China, are so obscure that some analysts have had an uphill battle sizing up their creditworthiness. For all the heartburn-causing moments shipping trusts have had in the last 12 months, unitholders have more than earned their 8-10 per cent antacid premium.

All that aside, most of the pundits have said very little about the port business itself, strangely enough. A port's earnings have more to do with trade volumes than anything else. In that respect, it is looking very promising for Hong Kong and China, where its ports assets are.

Morgan Stanley is forecasting export growth of 15 per cent and import growth of 18 per cent for China this year. This is also the year that the mainland's 12th five-year plan starts, which will see the launch of a whole pipeline of projects, all of which need to be fuelled by cargo going through the ports.

If any exuberance from Hutchison seems suspect, it might help to know that its competitor feels the same way about container volumes. Tianjin Port Group is expecting its container volumes to more than double from last year to as much as 20 million 20-foot equivalent units (TEUs) a year by 2015. It is putting its money where its mouth is, with a 110 billion yuan investment planned.

By 2015, Hutchison's Yantian terminals will be larger, too. Its Yantian West Port Phase II will add three million TEUs in capacity a year. How this will be funded has been a sticking point with some analysts, wary of the bite it might take out of the total distribution for unitholders.

However, development capital expenditure is not going to do that for the next two years, at the very least. For 2011 and 2012, the trust's capex of HK$1.84 billion and HK$1 billion respectively is going to come out of the existing reserves of the portfolio, which stand at HK$5.19 billion.

This has been partially the reason the trust has been so bold as to commit itself to a distribution that is 100 per cent of its distributable income. There is nothing to hold it to this ratio in the future, but 100 per cent is a very difficult number for unitholders to forget.

Relative to its competitors, its assets appear to have the upper hand - or the deeper waters. Its terminals at Yantian are of the deepwater kind, which many of its nearby competitors that are on the Pearl River Basin cannot claim to have. With Maersk possibly ordering 30 18,000-TEU ships - the largest the world has seen - being deep has become an advantage in the ports business that has got nothing to do with wearing a beret.

Beyond the medium-term, however, several things remain to be seen, such as how future capital expenditure will be funded and whether its investment mandate will change. The trust is entitled to invest in other assets after three years, without the unitholders' approval.   - 2011 March 14   BUSINESS TIMES


Asia is creating wealth faster than anywhere else in the world. There are now as many high net worth individuals in Asia as there are in Europe and by 2013, this well-heeled group will be larger than that in the US.

Asia's new riches are fuelled by rising wages in a tight labour market, capital asset gains and rapid business expansion. The number of high net worth individuals (HNWIs) in Singapore and Hong Kong alone - those with US$1-3 million in assets under management - is projected to grow 40 per cent to 122,000 over the next three years.

Asia is even more important after the financial turbulence & Japan Earthquake :   Prudential CEO

It was standing room only at yesterday’s keynote luncheon address at the Credit Suisse Asian Investor Conference. And no wonder for Tidjane Thiam is quite a draw and CS certainly scored a coup by being able to put the chief executive officer of Prudential on the agenda this year.

In his introductory remarks Brady Dougan, CEO of Credit Suisse, said that the ability to unlock Asia’s large pool of savings is critical and thus it is no wonder Asia represents the best growth opportunity globally for insurers today. "I personally know most financial services CEOs on the planet and Tidjane is one of the smartest, most visionary and most daring," said Dougan.

"There are times when I’m happy that if I blush it is not visible," said Thiam, who is of French-Ivorian descent. In his opening remarks Thiam spoke of the macro-economic events, which are shaping the world. He referred to the lessons that had been learnt from the financial crisis and then moved on to more recent developments.

"How many of us had understood the depth of desire of people in the region to effect change?" he questioned, referring to the ongoing turmoil in the Middle East and North Africa, going on to remark that while uncertainties remain with respect to the outcome, what is certain is that there is a process of change underway.

And finally, with respect to Japan, Thiam said that nature has once again painfully shown us how she has the ability to change our plans.  Prudential does not have a large business in Japan but Thiam said he has developed a great respect for the people of the country on his visits and highlighted how quickly they have taken up the challenge of rebuilding.

"Building a better society is challenging and complex and one input is capital, which is at the heart of the insurance industry," said Thiam, neatly segueing into the heart of the presentation. "We help to generate wealth through investments in quoted companies," he added, citing one example that 50% of the long-dated debt issued by utilities in the UK is held by insurance companies. Water quality in the UK has never been higher and I see salmon again in the Thames near my office – we provide capital which fuels this, said Thiam.

Thiam is clearly a believer in Asia and said that the financial crisis had demonstrated that the global economy has been reliant on the US consumer for too long. "The US economy is now challenged by its own issues," he said referring as one example to the fact that the US will have 10,000 retirees every day for the next 20 years. Thiam expects Asia to play a key role in creating a new wave of consumers and said the insurance industry will effectively channel wealth towards long-term capital creation.

"Insurers act as key stimulants to growth and of equity and debt markets," he said naming Indonesia, where Prudential is one of the largest investors in the country’s capital market, and Vietnam where Prudential owns more than 40% of the country’s government debt. During the course of his presentation Thiam also referred to the 40,000 agents Prudential now has in Vietnam, and the competition from local players, which is growing the pie and the profile of the insurance buyer.

The role insurance companies play in facilitating the creation of infrastructure was also highlighted by Thiam who said the area was “too important for any government to fund alone”. The long-term nature of infrastructure financing is also suited to the liability profile of insurance companies. “China spends 20% of its GDP on infrastructure while India spends 6% and needs to follow China’s example [and spend more], as do other South East Asian economies,” he said.

Credit Suisse, alongwith HSBC and J.P. Morgan, was a buy-side adviser to Prudential on its $35.3 billion bid to buy AIA Group, the Asian life insurance unit of American International Group (AIG). The deal would have been the largest ever in the insurance sector and catapulted Prudential into the world’s biggest non-Chinese insurer by market capitalisation.

The deal, which was announced in March 2010 only six months after Thiam succeeded Mark Tucker at the helm of Prudential, was a good example of all the adjectives Dougan used to describe Thiam. When it failed Prudential had to shell out £377 million ($612 million) in fees including a break fee of £152 million to AIG. Some onlookers speculated that the deal could even cost Thiam his job.

But Thiam, who joined Prudential in March 2008 from Aviva, has demonstrated that he can stand his ground and deliver even during the tough times. At the time the takeover collapsed Thiam had said that growing Asia remained a strong focus for Prudential. The insurance major released results for fiscal 2010 earlier this month and that focus is yielding dividends. Asia, under the watch of Barry Stowe who heads Prudential in the region (for an in depth interview with Stowe see the April issue of FinanceAsia magazine) contributed 44% of new business profit and earned a 60% profit margin on new business.

When the floor opened for questions, one delegate, who was clearly somewhat skeptical of Thiam’s optimism with respect to Asia, posed a question. "You said rule of law is very important and yet the largest country in Asia, China, has no rule of law and the second-largest, India, has a rule of law however one will die before one’s case gets heard. How can you be so optimistic when the two largest countries don’t have one of the principles you yourself cited as important?" he queried.

Every society has its own pace of change and we are respectful of that, replied Thiam. He added that he could not put an exact date on when things in India would improve but he was confident they would, choosing, perhaps wisely, not to allude to China in his answer.

Thiam did not distribute a handout and used only two slides with some macro-economic date. I've probably bored you to death, he said self-deprecatingly when the floor had no more questions and his allotted hour had time to spare. However, the fact that few delegates had walked out during his talk, which has happened at other lunches, was testament to how captivated the room was.

"There is no doubt to me that Prudential’s future growth will be in Asia and I firmly believe we can serve these [Asian] communities well and generate returns for our shareholders," he said in closing. "It is a privilege for Prudential to play a part in the transformation of Asia."    --   2011 March 25   FINANCE ASIA

Asia to grow at around 7% for next 2 years: IMF
Disasters in Japan unlikely to have major adverse impact on region

Economic growth in Asia will 'remain robust' this year and in 2012 with Japan's triple disasters unlikely to have any major adverse impact upon the rest of the region, the International Monetary Fund (IMF) said yesterday in its latest Regional Economic Outlook for Asia and the Pacific.

Overall growth across the region should be around 7 per cent in both years, led by China and India, the IMF said, adding that Asia will continue to be in the vanguard of the global economic recovery.

Despite the severity of Japan's crises and the feared impact that this might have in Asia and beyond as a result of supply disruptions through production networks, the IMF downplayed this threat in its report.

'The (Japanese) government's response helped to contain the economic impact, and spillovers to activity in the rest of Asia should be limited,' it said. 'The situation is, however, still uncertain,' the report acknowledged.

China is forecast by the IMF to see real GDP growth of 9.6 per cent this year, slowing only fractionally to 9.5 per cent in 2012, while India's economy is forecast to grow by 8.2 per cent in 2011 and by 7.8 per cent next year.

Among what the IMF classifies as newly industrialised economies or NIEs, Singapore's is forecast to grow by 5.2 per cent this year (compared with 14.5 per cent last year when growth enjoyed a one-off boost through recovery for the recession year of 2009), and by 4.4 per cent in 2012.

'Overall, risks to the outlook for Asia are balanced, although new downside risks have surfaced such as the unrest in the Middle East and North Africa as well as uncertainties about the effects of the tragedy in Japan,' said Anoop Singh, director of the IMF's Asia & Pacific department.

Also, fiscal and financial vulnerabilities in advanced economies could affect Asia mainly through the trade channel, according to the IMF notes. Within Asia, potential overheating pressures are rising, and inflationary risks remain on the upside, it noted

In the Asia region as a whole, consumer price inflation accelerated to about 4.5 per cent in February 2011, largely due to the rise of fuel and food prices, which are beginning to feed into core inflation and to affect the poor.

'Headline inflation is generally expected to increase further in 2011, before decelerating modestly in 2012,' it said.

Signs of overheating are meanwhile building up in some of the region's asset markets. the IMF warned.

'In Hong Kong SAR, for example, there is the risk of a property bubble developing, and the government is taking proactive policy steps to resist this, such as putting in place a range of prudential measures.'

The need to tighten macroeconomic stances in Asia has become more pressing, the IMF suggested. 'Further monetary tightening and macro-prudential measure will be necessary in several economies that face growing overheating pressures.'

In many economies, 'exchange rate flexibility is a key line of defence against overheating (while) several economies have scope for more fiscal consolidation'.

A key challenge for Asia's policymakers remains the need to achieve 'balanced, sustainable, and more inclusive growth over the medium term', Mr Singh said.

He noted the need to reduce inequality through inclusive labour markets, which would guard against risks to social stability, and to develop new engines of growth by strengthening private domestic demand.   -- 2011 April 29   BUSINESS TIMES

Asia Property Transactions Jump 59% 
Surging prices in Hong Kong and Japan account for half the $63 billion USD spent

A massive  USD$63 billion was spent on property transactions in Asia last year, a 59 per cent rise from 2009, as the region's economies led the recovery from the global financial crisis, a report said.

Surging prices in Hong Kong and in Japan made up almost half the total amount spent, according to the study, which comes as several Asian countries grow concerned that large inflows of foreign cash are causing asset bubbles.

And in India, where strong economic growth is building a richer, bigger middle class, the property market grew more than ten-fold to US$593 million from US$55 million.

The figures, from US-based real estate consultancy CB Richard Ellis, are a huge increase from the US$39.2 billion spent in 2009, when the globe's worst economic crisis since the Great Depression sent property prices sliding.

'The Asian real estate investment market enjoyed an encouraging end to the year and prices for prime investment property have now recovered substantially,' said  the consultancy's head of research for the Asia-Pacific area. 'The market outlook remains generally optimistic,' he added.

Hong Kong accounted for US$15.2 billion of the total, while Japan's market saw US$14.2 billion in transactions. Although mainland China's 2010 transactions softened slightly to US$3.4 billion from US$3.8 billion.

'If you look at the property market globally, the US market is not good, Europe is not good, so all the attention is focused on Asia especially in those (places) with strong ties to mainland China,' said chief analyst and head of research at Hong Kong's Midland Realty.

Prices here have jumped 50 per cent in the past two years due to low interest rates, a strong economy, and an influx of mainland buyers who make up a big proportion of purchases, especially of luxury homes.

Worries about a property bubble have prompted Hong Kong's government to announce a series of measures to cool the market, including boosting land supply and new stamp duties to keep out so-called hot money.

The study comes a day after a report showed that Tokyo and Hong Kong were the first and third most expensive places in the world to rent. Moscow was second.

Asian economies have outperformed their Western counterparts in recovering from the global economic slump that started in late 2008, with cash-rich foreign investors and low interest rates stoking demand for Asian properties.

'We expect that levels of activity will increase in 2011 as both foreign and domestic investors tap into the growing pool of capital looking to secure or increase its presence in Asia,' said  the firm's executive director of investment properties for Asia.

In 2010, investors were especially drawn to office and retail space, which accounted for US$26.3 billion and US$10.4 billion in transactions respectively, said CB Richard Ellis' Asia Investment MarketView report for the second half of 2010.

Activity slowed in most markets during the last three months of the year except in mainland China, Malaysia, and Singapore, which notched up a quarterly record as the city-state saw more than US$5 billion in transactions, it said.

Transactions by institutional investors touched US$13 billion in 2010, a 74 per cent year-on- year increase, while investment by Asian real estate investment trusts skyrocketed 195 per cent to US$10.5 billion, the consultancy said.

Cross-border property investment also picked up last year, accounting for US$11 billion of total transaction volumes, a 96 per cent year-on-year increase but still off a 2007 peak of US$27 billion, it said.   --  2011 February 19  AFP

Why Asia?

More than just a token seat for Asia at the table

Asia has become fairly important to the growth of global firms, with more 'Asia seats' on their boards and the region's share of the revenue pie expected to be twice its current size within a few years.

In 2010, Asia accounted for 11-15 per cent of these firms' global revenue. That's the median finding from a survey of some 130 mostly 'Western' large multinationals operating in Asia. For nearly 30 per cent of the respondents, however, Asia already accounted for at least a quarter of global revenue last year.

Come 2015, the median forecast sees Asia contributing 21-25 per cent of the firms' total revenue. Indeed, more than 10 per cent of the respondents reckon Asia will comprise at least half of their global revenue by 2015 - up from just 2 per cent in 2010.

'That's a significant rise,' says Justin Wood, director, South-east Asia, at the Economist Corporate Network (ECN), which released the findings of its 2011 Asia Business Outlook Survey yesterday.

'It's another measure of how keen and focused non-Asian firms are on the potential of Asian markets,' he told BT.

ECN is The Economist Group's advisory arm that provides insights on emerging markets for senior executives. Some 85 per cent of the respondents represent MNCs with more than US$1 billion in global revenue, with nearly a third from firms with over US$10 billion in global sales. Nine in 10 of the firms have their global HQ in either North America or Europe.

One indicator of the region's growing strategic importance is the jump in the number of non-Asian MNCs with board members working in Asia over the years.

The percentage has shot up, from 19 per cent in 2008 to nearly 30 per cent in 2009 and 2010. And of the 30 per cent with at least one board member based in Asia, more than 40 per cent of them had two or more such 'Asia seats', suggesting that the 'Asian representation is often more than a token seat at the table', says the survey report.

The Asia-based board member may or may not be Asian, and is, in fact, more likely to be a Westerner - but nationality is not the point, Mr Wood says. The growing trend of 'Asia seats' on the board reflects the region's rising strategic importance.

That said, few of the respondents have a global business function head located in Asia.

Apparently, the idea of Asia as a global firm's main market as well as its production and sourcing hub 'still lags somewhat' - only 4 per cent of respondents believe their marketing chief could be based in Asia by 2015, and hardly any of the firms see that possibility for their head of sales, or head of finance or IT.

That said, 'a handful' of respondents from the chemicals sector do currently have their global head of sales in Asia, reinforcing the region's importance at the upstream end of global supply chains, says the survey report.

But ECN members also suggest, anecdotally, that global firms are 'becoming more flexible and agnostic about the location of their senior executives', particularly as Asia is an especially 'attractive and logical' place to base certain functions such as manufacturing, operations or procurement.

More than 8 per cent of respondents whose sourcing or procurement head is not currently in Asia believe they could be by 2015, along with manufacturing (6 per cent) and operations (5 per cent). And 5 per cent of the survey respondents say their global chief operating officer (COO) is in Asia.

For all the bullishness about Asia, however, 84 per cent of the respondents said their 2010 revenue came in well below potential, as indicated by market opportunity.

This could be linked to size and commitment to the region, according to the survey report.

Most of the respondents who said they underperformed were medium-size firms of between US$1billion and US$5 billion in global revenue, and almost none have board members in Asia nor any global functional heads in the region.

A committed presence in Asia is key to marshalling global strategic and capital resources for expansion, says ECN, adding that its members often observe that their ability to expand in Asia is hampered by 'an overly cautious outlook back at headquarters, as the gloom of Western markets clouds even the sunniest Asian prospects'.

But the core sentiment among respondents is still one of optimism about the future of Asia's market potential, it says.

One big challenge, the survey found, remains the dearth of talent in the region - particularly at the top rungs, and in both quantity and quality.   - 2011 Jan 26  BUSINESS TIMES

Best Asia firms open to new ideas

Asian companies with the best leadership distinguished themselves from global peers with an openness to new ideas, cultures and best practices, says a Hay Group study released yesterday.

General Electric topped the sixth annual global Best Companies for Leadership ranking for a second straight year, while Samsung emerged tops in Asia ranking, released for the first time this year.

The 2010 study, based on a survey of more than 3,700 individuals and 1,800 organisations worldwide, also threw up a couple of findings in line with the growing global ambitions of Asian firms.

Over two times as likely as their global peers to lure leaders with international opportunities, 77 per cent of these top Asian firms give equal weight to ideas from subsidiaries as ones from the headquarters, the study's key findings on Asia showed.

Hay Group Singapore managing director Andrew How noted that the best Asian companies distinguished themselves from their global peers with an openness to new ideas. 'They are exceptionally keen to benchmark themselves against the best, and are agile enough to adjust their strategies quickly when needed,' he said.

He thinks this agility should be harnessed to adopt more open, participative approaches and more delegation of authority.

'Asian bosses have a predominantly 'directive' way of leading. This suits the culture here but it does not always create the best performance climate,' he said.

While no local company made it to Hay's top-five list for Asia - HSBC, Tata & Sons, Infosys and Nissan Motors followed Samsung on that ranking - SingTel was named an 'up and coming company to watch in the leadership stakes'.

Others nominated by peers in this category include Haier Group, LG Corporation, Huawei Technologies and Lenovo Group.

The global rankings saw notable changes from the previous year's. Though familiar names like Procter & Gamble, Coca-Cola, McDonald's, Accenture and Wal-Mart all made it to the top 20 list again, others like Ikea, Zappos and UPS fell off the board while newcomers Intel Corporation, Siemens and Banco Santander shot into the top five.  -- 2011  Feb 8   BUSINESS TIMES

Asia Metrics

The United Nations World Investment Report calculates that there are now around 21,500 multinationals based in the emerging world.  The number of companies from Brazil, India, China or Russia on the Financial Times 500 list more than quadrupled in 2006-08, from 15 to 62. Brazilian top 20 multinationals more than doubled their foreign assets in a single year, 2006.

At the same time Western multinationals are investing ever bigger hopes in emerging markets. They regard them as sources of economic growth and high-quality brainpower, both of which they desperately need.  Multinationals expect about 70% of the world’s growth over the next few years to come from emerging markets, with 40% coming from just two countries, China and India. They have also noted that China and to a lesser extent India have been pouring resources into education over the past couple of decades. China produces 75,000 people with higher degrees in engineering or computer science and India 60,000 every year.

...  No visitor to the emerging world can fail to be struck by its prevailing optimism, particularly if his starting point is the recession-racked West. The 2009 Pew Global Attitudes Project confirms this impression. Some 94% of Indians, 87% of Brazilians and 85% of Chinese say that they are satisfied with their lives. Large majorities of people in China and India say their country’s current economic situation is good (see chart 3), expect conditions to improve further and think their children will be better off than they are. This is a region that, to echo Churchill’s phrase, sees opportunities in every difficulty rather than difficulties in every opportunity.   - 2010  April 15     THE ECONOMIST

Corporates counting on Asia

  

For anyone thinking Asian technology may be behind the west, watch this Chinese designed concept

 

Western institutions co-investing with Asian institutions:


Time for Asean economies to shine

It has the ability to attract global capital, with its growing domestic capital markets while being consumer-driven

The dawning of a new decade has the potential to bring with it a new period of transformation for South-east Asia. The region's increasing ability to attract global capital, its fast-growing and increasingly consumer-driven economies and its expanding domestic capital markets are key reasons why South-east Asia will have a much greater global economic profile over the next decade. The timing is also impeccable as we approach the establishment of an Economic Community in the Association of South East Asian Nations by 2015.

Asean is home to around 600 million people, while its six biggest economies - Singapore, Malaysia, Indonesia, Thailand, the Philippines and Vietnam - should have a combined nominal gross domestic product of around US$1.76 trillion in 2011 - more than India or Russia and only a little way behind Brazil. These six countries are expected to achieve an average real GDP growth rate of just above 5 per cent in 2011, somewhat slower than 2009 and 2010, but still a healthy rate and comfortably above growth forecasts for the global economy.

The statistics are impressive, but the ambitions that have been set for the region are also great. What is encouraging is that substantial progress is being made.

Growing investments

Asean's drive towards closer economic integration coincides with tremendous growth in investment into the region. The bloc's exports doubled between 2001 and 2009, reaching US$800 billion in 2009, and imports have grown at a similar rate, topping US$700 billion in the same year. Intra-Asean trade accounts for a substantial amount of the region's economic activity at 20.6 per cent of exports and 28.1 per cent of imports in 2009. Pan-regional networks of assets are increasingly common and these are often funded by equity investors in regional markets, particularly in Singapore as the financial hub of South-east Asia.

Policymakers have made the development of intra-Asean trade a priority. In October last year, Asean secretary-general Surin Pitsuwan said the bloc's intra-regional trade should increase from its current 25 per cent to 40 per cent as we approach 2015. Business leaders have long been aware of the benefits of an Asean strategy, as companies such as Air Asia, Genting, SingTel and San Miguel have demonstrated.

Global portfolio investors have already tuned in to Asean's strong fundamentals and exciting prospects. The stock markets of Thailand, Indonesia and the Philippines alone attracted net foreign buying of US$5.4 billion in 2010, up from US$2.82 billion in 2009 and a net outflow of US$3.01 billion in 2008. With near-zero interest rates in much of the developed world, the liquidity unleashed by the US Federal Reserve's quantitative easing programmes sought returns in growing emerging markets. These flows helped equities in Thailand, Indonesia and the Philippines rise 56 per cent, 54 per cent and 46 per cent respectively in US dollar terms in 2010. Investors in the Asean story have been rewarded handsomely.

South-east Asia is attracting more and more strategic investors too. Indonesia - Asean's biggest economy and chair of the group in 2011 - has seen Vallar, a London-listed company, agree to a US$3 billion deal with Indonesia's Bakrie & Brothers and Berau Coal Energy that will result in an Indonesian coal company - Bumi PLC - being traded on the London Stock Exchange.

In December 2010, global agricultural giant Cargill agreed to pay US$300 million to buy a controlling stake in Jakarta-listed Sorini. Larger South-east Asian companies are also increasingly active in seeking investment opportunities outside the region.

For instance, last year Wilmar International agreed to pay US$1.6 billion for CSR's sugar unit in Australia and Sembcorp acquired UK-based Cascal for US$450 million.

Buoyant stock valuations and supportive financing conditions have helped give South-east Asian CEOs the confidence to be more bold, while increasingly large volumes of primary capital market issuance in the region reinforce the message that investors are eager to fund regional enterprises.

As I wrote in The Business Times in mid-2010, South-east Asian companies' ability to access funding from their domestic markets is better than ever. 2010 was the biggest year on record for initial public offering (IPO) volumes in Singapore, Indonesia and Malaysia, where companies raised US$5.7 billion, US$5.3 billion and US$6.5 billion respectively. According to Dealogic, South-east Asian IPOs accounted for 1.2 per cent of global IPO volumes in 2000, but this rose by a factor of five to nearly 6 per cent in 2010.

On top of this, bonds denominated in South-east Asian currencies are going global, reflecting investors' appetite for exposure to this region. The Republic of the Philippines, which has long been a regional pioneer in the international bond markets, led the way with a US$1 billion equivalent peso-denominated global bond that was settled in US dollars.

This was the first global bond issue denominated in an Asian currency and was followed shortly afterwards by another Philippines issuer, Petron Corp. I would expect to see more regional issuers harness global investor demand for Asian local currency bonds to borrow at attractive rates in 2011.

This is all very promising, but Asean's ambitions go further. By 2015, the intention is to establish a single market and production base in the region that will allow the free flow of goods, services, investment, capital and labour. Its policymakers also face challenges in the form of rapid currency appreciation and slightly slowing growth this year. But regional economic integration is already a reality for many companies and SEA Incorporated commands the attention of the world's strategic and portfolio investors.

The scene is set for Asean's position in global business and finance to reach a new level in 2011, and I expect to see investment into and from the region accelerate.

2015 is still a little way off, but there is no question that it is time for South-east Asia to take its place among the world's emerging markets giants.

--  Helman Sitohang is South-east Asia CEO, Credit Suisse    2011 Jan 28  BUSINESS TIMES

Growth will come from emerging markets and long-term theme will be domestic consumption

Markets have been skittish of late as fiscal troubles in Europe and a lacklustre US labour market gave rise to fresh concerns about the global economy. Talk of a 'double-dip recession' has re-emerged in more pessimistic circles, not least at the height of Greece's sovereign debt problems, when bears fretted that Europe could face a financial meltdown as did the US when Lehman Brothers collapsed in late 2008.

Such doomsday speculations are probably too extreme, and economic indications, thus far, continue on balance to point to positive growth for the world economy. At the same time, central bankers have largely stuck to policies promoting easy monetary conditions. Yet concerns about the pace of growth are not unwarranted, especially after last year's massive stock market rally. Markets have priced in a strong recovery, with growth expectations that may not be too hard to disappoint, not least when one considers the fiscal state of affairs in the developed West.

The big challenge this year is the transition from stimulus-driven growth to private sector demand. Engineering a smooth handover was never going to be easy, but the task may get harder as governments find themselves increasingly constrained by hefty deficits and outstanding debt racked up by last year's stimulus spending. The situation is especially acute in Europe even as latest developments suggest a soft landing for Greece's budget woes.

As it turns out, sovereign debt sustainability woes are not constrained only to Greece, with other states like Portugal, Spain, and even the UK, facing similar fiscal issues, albeit in less serious predicaments. Moreover, the budget issues faced by these countries are showing up to be longer-term, structural fiscal problems that go beyond one-off costs from crisis-addressing stimulus efforts. As an economic bloc, the eurozone is unlikely to be fallen by these issues, but its ability to support growth by fiscal stimulus is likely to be significantly constrained.

Over in the US, policymakers probably have more breathing room when it comes to fiscal pump-priming. But having heavily leveraged up its balance sheet during its initial stimulus response to the crisis, Washington may have limited capacity for further injections should consumer spending and private investment fail to recover more meaningfully. If compared with Japan's budget position on entering the post-bubble period of the 1990s, the US today appears to possess far less fiscal flexibility to support economic activity through stimulus spending.

Standing out in this less-than-encouraging picture are Asia's emerging economies. With unleveraged sovereign balance sheets, these nations, led by China and India, will very likely lead the global recovery this year. Indeed, China's role and importance in the global economy has increased meaningfully through the crisis. The fast-growing economy has been well supported by government spending, which Beijing can well afford to sustain, merely based on its reserves. Indeed, Premier Wen Jiabao recently reiterated at the National People's Congress his intention to maintain appropriately easy monetary policy and proactive fiscal policy.

The country has set a target of 8 per cent for GDP growth this year, though Citi analysts believe actual performance is likely to be closer to 10 per cent. The export sector is likely to continue its recovery as the global economy improves, even if at a modest pace. Most signals are positive for trade, while labour shortages suggest rising capacity utilisation and a strong order book. Infrastructure and property investment will also continue to be key growth drivers, with government investments in major projects likely to continue unabated.

Longer term, domestic consumption is expected to become an increasingly important growth driver as China rebalances its economy away from an over-reliance on exports. Last year's global crisis has highlighted the need to transition the economy from an export-oriented model to a more balanced one. Indeed, export growth post-crisis is forecast to halve from the 25-30 per cent pace during 2002-07. China's consumer economy is gradually gaining momentum as purchasing power rises, and consumption is tipped to become a more important growth booster from 2014 onwards.

Of course, the emerging Asia story is not without risks. Strong and resilient growth is giving rise to inflationary pressures which have caught the attention of policymakers. As the output gap closes, abnormally low interest rates and rising commodity prices are likely to see moves to tighten monetary policy.

Beijing, for one, has shifted from an outright focus on stimulus towards one tilted towards moderating growth to contain rising asset prices and other inflationary pressures. Citi's China economist suggests inflation could be on a prolonged uptrend in China after a bout of deflation in 2009, suggesting a need for a less accommodative policy stance going forward. Further hikes to the bank reserve requirement rate are likely, to as high as 18 per cent for large banks, while further measures like renminbi appreciation and interest rate hikes may not be far behind if inflationary pressures remain high.

A similar policy shift has occurred in India. Our economist in India notes that the government has overtly transitioned from focusing on enabling growth to managing inflation - and this is expected to characterise policy through 2010. With global fuel and metal prices on an uptrend, policymakers may be prompted to adopt even more aggressive monetary action than is anticipated by Citi's forecast for a 125 basis point aggregate increase in policy rates in 2010.

Yet while such policy tightening moves may cause markets to be volatile, they should be seen as positive as they seek to curb the formation of asset price bubbles. As long as policymakers remain vigilant and move appropriately, Asia's emerging economies can continue to enjoy sustainable, longer-term economic growth that is supported by the region's favourable fundamentals.

Overall, this economic backdrop suggests that equity markets are likely to be range-bound this year as investors try to sort out the overriding fundamentals that will dominate sentiment. One thing that is clear is that global growth in 2010 is going to be driven by emerging markets as developed markets sort out their banking and fiscal issues. In this volatile environment, we believe that opportunities for investors will lie more in emerging Asia. In particular, we look to tapping on the rise of the emerging market consumer, which looks to be a long-running theme that should extend beyond the cyclical recovery.    - 2010 March 24     BUSINESS TIMES

Haren Shah is senior strategist, investment analysis & advice group, wealth management, Asia-Pacific Citi

Disclaimer: Opinions expressed herein should be regarded solely as general market commentary, and may change without prior notice. Past performance is no guarantee of future results

IMF expects above 7% growth for Asia next year, but warns of fragility

Warnings about the 'fragility' of the global economic recovery and the growing risk of trade protectionism were sounded by the International Monetary Fund (IMF) chief and others yesterday.

The IMF is forecasting economic growth of 'over 7 per cent for next year' for Asia excluding Japan, said Dominique Strauss-Kahn, managing director of the IMF, which is due to publish its latest economic growth forecasts in the next few days.

'The bad news is that all this is very fragile, especially in the advanced economies - the US, European Union and Japan.'

While those economies have returned to growth, 'most of that growth still comes from public support and private demand is still very weak', Mr Strauss-Kahn said. 'So it's too early to say that the crisis is over.'

Moreover, in many economies, unemployment is still going to rise in the coming months, which could lead to political and social instability in some countries, he warned in a speech at the Asian Financial Forum in Hong Kong.

Growing concerns about the fragility of global economic recovery reflect official concerns that while conditions are generally improving, they remain too dependent upon government spending, and that private demand is not responding as fast as hoped.

'Private sector demand lags amid high unemployment,' the World Bank suggested in its latest Global Economic Prospects, where it noted also that 'financial markets remain troubled' and emerging market firms face the prospect of higher borrowing costs.

'I think there's a lot of complacency, presuming that the post-crisis world is Asia's for the asking,' said Stephen Roach, chairman of Morgan Stanley Asia and former chief economist at the bank. 'Asia remains heavily dependent on external demand from the West, and until Asia embraces a new model which is more balanced and reliant on internal private consumption, I think the jury's out on whether this is the moment for Asia to shine.'

'I'm an optimist on Asia, but it's going to take a lot of heavy lifting for Asia to emerge as the new engine for the global economy,' Mr Roach added.

Meanwhile, there was 'a big risk' that trade protectionism could increase, especially in the United States and the European Union, where the unemployment rate has reached 10 per cent and could climb further, he said.

'I think there's a worrisome chance that China may become a target' of a protectionist backlash due to the 'enormous political pressure' in those countries, he added. 'Do not take the resilience of China's strong growth for granted, especially in a global environment where the drumbeat of protectionism is growing louder.'

Other prominent speakers at the forum also cautioned that the world economy was still vulnerable to setbacks.

Hong Kong chief executive Donald Tsang said that although the economic environment worldwide had improved considerably, 'it would be premature to say that we are completely out of the woods'.

Victor Fung, chairman of Hong Kong's Li & Fung group, said that until private-sector demand had recovered, 'I don't think we are on the road to recovery'.

Lou Jiwei, chairman of the China Investment Corporation, China's sovereign wealth fund, said that the unemployment rate was an important indicator of the state of the economic recovery worldwide.

Michael Smith, chief executive of Australia and New Zealand Banking Group, said that as governments and central banks withdraw the fiscal and monetary policy support for their economies, the combination of fiscal tightening, rising interest rates and market nervousness 'will definitely mean more volatility'.

Mr Roach said that the exit from loose monetary policies by major central banks 'is risky and it's not going to go smoothly as central banks will promise you'.

After the unprecedented size of the stimulus measures taken to revive the world economy, 'by definition, we will have to have the biggest stimulus withdrawal in the world and it's going to be very disruptive', he said   - 2010 January 21

Asia's financial institutions should take advantage of an unusually open playing field, says Tony Tan of Singapore's Government Investment Corporation.

Emerging markets, and particularly Asia, look set to play a leading global role in the coming years. But the region must negotiate four significant hurdles if it is to do so, said Tony Tan Keng Yam, deputy chairman of the Government Investment Corporation, the bigger of Singapore's two sovereign wealth funds. Speaking yesterday at the Commonwealth Economic Forum in Taipei, he reiterated concerns he had raised previously.

Before turning specifically to Asia, Tan noted three main differences from the past in the worldwide post-crisis environment. First, the global economy will be far more reliant on policymakers for the next couple of years, following extensive government support for the financial sector. The big question, particularly in developed countries, is how to time the withdrawal of such support. Meanwhile, emerging economies will have to deal with rising inflation and likely asset price bubbles, without snuffing out growth, as others have noted.

The second major difference is the increasing importance of the emerging economies, anchored by Brazil, Russia, India and China (Bric). Over the next decade, we will hit a "tipping point", predicted Tan, where the influence of emerging markets will be "important, if not dominant". Emerging economies are expected to account for more than half the world's GDP growth over the next decade, and they will displace the G7 countries as the world's largest economies, even if their per capita incomes remain lower.

The shift in economic power is likely to increase geopolitical risks. For one thing, emerging economies, especially the Bric countries, will become key global powers and increasingly demand more say on world affairs. The US will remain militarily dominant, but will be heavily dependent on foreign countries, including key emerging geopolitical rivals, to finance its large public debt.

And the rise of emerging markets will mean they will attract a larger proportion of investment. Rather than being a risky and perhaps alternative part of a portfolio, he said, emerging markets will become a "core and unavoidable asset class", as well as a leading source of investment and credit.

The third aspect of the current environment Tan highlighted is that the recovery is likely to be a lot slower than after other crises, with developed economies potentially facing years of slow to modest growth. He cited factors such as increased regulation, weaker income prospects, high unemployment, weak house prices and the need for higher savings to maintain long-run consumption and repay debt.

All this has a number of implications for Asia, in the form of four broad challenges. One is to strike the right balance between private-sector development and public regulation, said Tan, "learning from the mistakes of the West". Clearly the belief that markets, especially financial and capital markets, can regulate themselves was misguided.

Asian countries have long recognised that markets are human institutions and can be imperfect, said Tan, and that government intervention and guidance might therefore be needed. He seemed to have overlooked the fact that governments, too, are "human institutions" and clearly have imperfections of their own, but it's clear what he was getting at.

The second challenge is for policymakers in Asia to respond flexibly to risks such as rising asset values, as the global economy recovers. While equity and real estate prices have not in general hit their previous peak and can be justified by positive fundamentals, there remains the danger of bubbles forming.

Thirdly, Asia needs to establish a more sustainable growth model, particularly in large economies such as China and India, by strengthening domestic consumption and building up service-related sectors. This in turn would help improve productivity, and more balanced growth could also help reduce income inequality and reduce pressure on the environment. A growth model that is heavily dependent on resources -- such as one that is manufacturing-focused -- will soon hit constraints given the amount of supply available.

The fourth challenge for Asia, said Tan, is for the region's financial institutions and markets to take advantage of an unusually open playing field, particularly for the next few years. Not only did Asian banks enter the crisis much healthier than their global counterparts, but Asian households, businesses and governments are relatively unleveraged with debt.

Hence, regulatory and development authorities in the financial sector need to cooperate as never before with each other and financial institutions to develop regional financial and capital markets.

If Asian economies surmount these obstacles, concludes Tan, the next decade could be a "golden age" for them.   - 2009 January 19    ASIAN INVESTOR

Investment in Asia-Pac properties seen doubling

About US$85 billion will be available for direct investment in real estate across the Asia Pacific next year, double the US$43 billion transacted in the past 12 months, says DTZ Research.

The US$85 billion equates to 27 per cent of the US$315 billion total capital available for direct investment in real estate worldwide in 2010, DTZ says in its The Great Wall of Money report issued yesterday. The report analyses data generated by DTZ Research's equity tracker.

It also says 2010 worldwide transaction volume should be more than double this year's US$157 billion and could return to the level last seen in 2004.

Globally, the ratio of capital chasing real estate is about US$2 for every US$1 of deal volume. The ratio is relatively higher in Europe at closer to 2.2, compared with 2 in the Asia-Pacific and 1.8 in the Americas.

'Asia Pacific and Europe are relative winners, with more money targeting these regions for investment than they are raising and investing elsewhere,' DTZ's report says. 'Together, these regions are targets for 77 per cent combined of the total investment in 2010 but are raising only 49 per cent of available money.'

But DTZ cites one major caveat - capital required for de-leveraging. It points to the considerable amount of commercial real estate lending due for refinancing over the next two to four years.

'While some of the available capital may be diverted to this purpose - for example, through provision of debt financing - we expect the de-leveraging and unwinding of support policies will be slowly phased in over time, limiting the immediate impact in 2010,' it says.

Third party-managed funds are the largest investor category, accounting for 60 per cent of available equity, followed by institutions with 28 per cent and sovereign wealth funds with 6 per cent. The remainder has been raised by German open-ended funds, publicly listed companies and various private companies/high-net worth investors.

DTZ says 81 per cent of total capital raised is being directed towards multi rather than single-sector investments. Just 19 per cent of the capital has been raised to target a specific property sector only - chiefly industrial (5 per cent), office (4 per cent) and retail (3 per cent).

As well, 70 per cent of total capital is targeting two or more countries. Those investing in a single country are predominantly focused on the major liquid markets of the UK and US, accounting for 9 and 7 per cent respectively of total planned investment. Germany, China and Japan are expected to make up a combined 5 per cent of planned investment.

'Globally, most investors are adopting multi-sector and/or multi-country strategies as part of sector and geographic diversification strategies, and reflecting the opportunistic nature of most fund mandates,' says associate director of real estate strategy at DTZ Research. -   2009 December 2009   BUSINESS TIMES

Asian century without Asians?

Asia is celebrating prematurely. The number of economic articles that have appeared in print welcoming the so-called Asian Century is beyond count. There are also many books on the subject. Despite having less than 20 per cent of the world economy in their clasp, Asian countries are made to feel like crowned kings. The press predicts that the global economy will be led by Asia.

It is true that emerging Asia has consistently clocked up 6-10 per cent growth rates over a sustained period in the last decade whilst the rest of the world struggled to get past 3 per cent.

Global growth may be taking off again after the financial crisis, driven by an Asian engine but the pilots are not Asians. One look at the boards of large corporations will tell you that.

Apart from a handful of companies, Asians are not CEOs or directors in many of the Fortune 500 companies. There is an important distinction between Asians in Asia and naturalised Asians in the West.

Indira Nooyi (Pepsico CEO), Vikram Pandit (Citibank CEO), Jerry Yang (Yahoo co-founder and former CEO) and some others have made their countries of origin proud, but they are Americans.

Is there any Chinese living in China who is on the board of an American company? Or for that matter, how many Indians or Koreans or Vietnamese are on those boards? Yes, there are exceptions. Ratan Tata, the Indian industrialist on the board of Alcoa, is a rare example. Lakshmi Mittal became the chief executive of Arcelor Mittal by taking over companies and not choosing to wait.

'There's a negative perception of Asians out there. People may view them as smart people, but not as leaders,' says Wilson Chu, a Dallas lawyer who directed a Chinese-American study of Fortune 500 companies.

The Committee of 100, a group of prominent Americans of Chinese descent formed to address issues concerning the Chinese-American community, in its 2007 Corporate Report card on Asian ethnicity, cited that only 1.46 per cent of the Fortune 500 company directors in the US are Asians, notwithstanding that most of them are naturalised US citizens.

Asians continue to strive hard for a place on the boards. This is even true of businesses where Asia either already contributes or is forecast to contribute a large percentage of the profits.

The colonial mindset goes further in a few cases. For instance, a top German company replaced its local CEOs with German implants in various regions, including Asia, as recently as 2006.

Yet, Asian giants have taken the leap of faith. Some years ago Sony chose a Briton, Howard Stringer, as chief executive and, of course, there is the more famous case of Nissan being run by Charles Ghosn, a Brazilian.

'The central drama of our age is how the Western nations and the Asian people are to find a tolerable basis of co-existence,' wrote the American journalist Walter Lippmann three decades ago.

I would like to argue that the world's top companies are the losers if they do not wake up to the opportunities offered by Asian talent.

There is also a huge advantage of cultural understanding that underlies Asian markets and business practices. Western corporates seem to take a short cut by sending their executives to Asia for 'knowledge acquisition' and 'cultural baptism' on time-bound stints. These efforts are like swimming lessons in the baby pool.

If one studies the Asian cultures deeply, it would not escape one's attention that Asians tend to be influenced by 'family' norms. What this means for the corporate world is potentially a heightened sense of ownership and a sense of duty.

Generally, I feel, Asians eschew the 'what's in it for me' syndrome and opt to do well by doing good. Western companies will learn this one day; hopefully not when it's too late. Until then, the Asian Century will not have arrived. -   2009 October 17   BUSINESS TIMES

BALA SHANKAR is adjunct faculty at SMU and a founder-director of an international school in Singapore

Asia-focused private equity funds surpassed the total capital raised in Europe in the third quarter – the first time in the history of the industry – as turmoil in the credit markets forced investors to pull back sharply from the sector.

About 25 funds focused on Asia and other regions outside of the US and Europe, amassed $12.5bn (£7.2bn) in the third quarter, according to data compiled by Private Equity Intelligence, an independent research group.   -  2008 October 7    FINANCIAL TIMES

Funds, banks start shopping for real estate assets
Players laying groundwork to snap up regional assets on the cheap

Institutional funds and private banks are scouting for property assets in the Asia-Pacific, industry players say.

The funds and banks - armed with billions of dollars in cash - are laying the groundwork so they can snap up assets on the cheap later in the year.

SG Private Banking, which just set up a centre in Singapore to focus on real estate, hopes to invest another US$500 million in Asian property by end-2010.

Other firms here have similar plans. For example, Woori Investment & Securities (Woori I & S), part of Korea's Woori Financial Group, is looking at arranging and investing about US$300-500 million in Asian property over the next two years. And Singapore-based ARA Asia Dragon Fund aims to invest another US$1 billion in Asia over the next two to three years.

Investment sales across Asia fell sharply in 2008 amid financial market turmoil, tight credit and higher funding costs. In Singapore, for example, investment sales last year were $17.8 billion - a 70 per cent drop from $54.02 billion in 2007, according to CB Richard Ellis.

But buying interest is slowly coming back as asset prices fall from their 2007 peaks. 'The near- term weakness creates a favourable entry point,' said John Lim, chief executive of ARA Asset Management, which manages the ARA Asia Dragon Fund.

Keiichi Hirano, SG Private Banking's Singapore-based global real estate head, told BT that asset prices generally are already about 30-35 per cent off their peak. Others put the drop anywhere between 20-40 per cent.

Market players say there is still a difference between asking prices and what buyers are willing to pay.

But Sung Heun Do, director and head of real estate investment and finance at Woori I & S, said: 'We believe this year will present very good opportunities to acquire key assets, though a lot will depend on other factors like the credit market.'

The amount the firm will invest will 'depend heavily on whether we are able to secure the right assets at the right risk-adjusted returns', Mr Sung said.

Others echo this view, saying returns are crucial as they shop around. SG Private Banking's Mr Hirano said his team will look for physical assets and property-related paper assets that yield about 10 per cent per annum.

He wants to increase SG Private Banking's exposure to real estate through its new Global Centre of Expertise in Real Estate in Singapore. SG Private Banking had 66.9 billion euros (S$138 billion) of assets under management at end-2008. The bank did not say how much of this was in the Asia-Pacific region, or in real estate. But right now, less than 5 per cent of SG Private Banking's investments are in real estate. By contrast, most high net worth individuals have 18-25 per cent of their portfolios in real estate, Mr Hirano said.

ARA's Mr Lim said that for the next six to nine months there will be a continued downward pressure on rents across most sectors and markets. But taking a medium-term view of three to five years, now is a good time to go in, he said: 'You must be able to take the medium-term view to make serious money.'

Established markets are proving more popular, with firms looking hard at Hong Kong, Tokyo, Singapore and Australia. Woori I & S is also bullish on Korea and said it is seeing a lot of interest from non-Korean associates to partner it in acquiring prime assets in Seoul.

China, on the other hand, is proving more controversial. Some funds BT spoke to said they will stay away from China as the real estate markets there are not well-established. ARA's Mr Lim, however, is upbeat about the country. 'We are most confident in China. We still think that the fundamentals are strong,' he said.

Another development is that many funds are looking at physical real estate, rather than just paper assets. In the past four or five years, clients were more interested in property-linked paper assets such as equities and funds, as these were cheaper and easier to invest in. But interest in physical assets is increasing as their prices slump in the current economic downturn. 'We will offer our clients the opportunity to invest into any country, and any type of property,' said SG Private Banking's Mr Hirano. - 2009 March 21    BUSINESS TIMES

Medium-term prospects better for Asia
Region's strong improvement in economic fundamentals since 1998 helps a lot in cushioning the impact of the global crisis

Although not at the epicentre of the current global financial market crisis, emerging Asia has been hit hard by it, mainly by the worldwide recession. The latest events have dismantled a few myths about Asia. The first is that Asia can decouple from the business cycle of advanced economies. The second reassuring argument is that the relatively sound position of Asia's financial institutions means the region is isolated from the global financial turmoil. And the third myth is that large foreign exchange reserves offer effective insurance against a capital account crisis.

In reality, Asia's exports and GDP growth are in a strong downturn and its financial markets and currencies have suffered substantial losses since mid-2008. Nevertheless, the medium-term prospects for emerging Asia are still superior to those of most other regions.

Collapse of global trade biggest burden on Asia's economic outlook

Asia's direct exposure to the toxic assets that set off the global crisis is limited, but any hopes that the region might escape serious turmoil have been dashed as the problems spread from the banking sectors to the real economy, resulting in a severe recession in the G-7 countries. The 'myth' of decoupling has never been as bluntly meant as it is now often referred to. It was originally expressed for the scenario of a 'mild' recession in the US. Few people would have expected Asia to hold up in an environment of the steepest worldwide recession since the 1920s.

The very open and export-dominated Asian economies are suffering badly from a unique breakdown in global trade. Emerging Asia has reported a steep decline in exports in recent months, since Asia sends many of its exports to the industrial countries - despite an increase in intra-regional trade in recent years - and part of the export decline stems indirectly via China, by way of the knock-on effect of declining Chinese exports to the G-7. Judging from the OECD's leading indicators, the region is in for even more export weakness ahead. What makes Asia now even more vulnerable to the global slowdown than in 1998 is that the weight of exports in GDP have risen substantially, from 36 per cent in 1998 to 47 per cent in 2007. The average number, however, hides large dispersion through the region - Hong Kong and Singapore 250 per cent of GDP, Malaysia 100 per cent and India 25 per cent.

Impact of crisis less severe than in other regions and than during the Asian crisis

While Asia is suffering, the regional fallout from the crisis is much lower than in other emerging markets. Central and Eastern Europe are suffering not only because of their very open and export-dependent economies which are closely linked to slowing Western Europe, but also because of fundamental weaknesses. High dependency on external financing and bank credit, as well as unsoundly structured debt (currency linked and short-term) and unsoundly spent capital (fuelling consumption booms and leading to overheating, lesser extent used for infrastructure investment) are a big negative in a time of global de-leveraging and a flight out of risky assets.

While the export fallout is the most obvious negative for Asia in the current environment, global de-leveraging has had an impact as well, although to a much lesser extent than in Eastern Europe. Much more difficult financing conditions, a shortage of US dollars for finance and the breakdown in availability of trade finance weigh on economic activity.

Nevertheless, in this respect, Asia's strong improvement in economic fundamentals since 1998 helps a lot. Most Asian countries have current account surpluses and more than adequate levels of forex reserves. Government deficits and debt levels are much lower going into the current crisis and savings rates are comfortably higher. Corporate balance sheets are also much stronger - any financing difficulties in recent months are a consequence of a global US dollar shortage rather than unsustainable debt burdens. Currency systems have moved away from fixed to flexible exchange rate systems, helping the adjustment process.

The positives: lower inflation, benefiting from lower commodity prices

One bright spot in the Asian economic outlook is inflation. Inflation pressure, which was a severe drag on economic growth in the first half of 2008, has fallen substantially. On average, the Asian inflation rate is expected to be 2.5 per cent in 2009, down from 7.5 per cent last year.

This hides a much steeper decline in countries like China, where inflation is now one per cent, compared with 9 per cent in February 2008.

For comparison, in Central and Eastern Europe, the average inflation rate is expected to slow from 12.8 per cent in 2008 to 9 per cent in 2009, while in Latin America the forecast is for a slowdown from 9.2 to 7.4 per cent. The main cause for the steep decline in inflation in Asia is a fall in food prices. Although core rates had started to climb in some countries, reflecting the overheated state of their economies, price pressure from capacity constraints is now gone, with unemployment rising everywhere.

Lower inflation will help in many ways. Stock markets will benefit via the positive effect on profits, since the corporate sector in Asia does not have much price-setting power and is acting as a price taker. Substantially lower commodity prices should support profitability. Lower inflation is not only helping the corporate sector, but also improving the purchasing power of private households, thereby bolstering internal demand and offsetting the negative effect of lower wages.

Last but not least, the much brighter inflation outlook allows central banks to change direction and reverse the monetary tightening of first-half 2008. Most central banks in the region have now substantially eased interest rates and are likely to ease further.

In China, where monetary policy shifted gear rather early in summer 2008, the positive effect started to be visible as soon as the end of last year. Bank lending had picked up visibly by early 2009 and this is expected to continue.

Consequences of the crisis on long-term growth potential

The growth gap between emerging Asia and the G-7 countries is likely to rise further. According to Goldman Sachs' model, China will likely overtake Japan as the second-largest economy in the world by 2010. Goldman's growth forecast for the next decade is an average of 7.7 per cent per annum for China and 6.4 per cent for India. These figures are somewhat lower than in the current decade - China 9.7 per cent and India 7.2 per cent - but still way above the long-term growth forecasts for the US, Japan and Europe, which are in the lower single-digit region at best.

The gap between potential growth in the G-7 and in emerging Asia is expected to increase over the next few years for various reasons. In the G-7, the severe consequences of reduced means of finance, less use of leverage, reversal of part of the deregulation of past years, tighter regulation and strongly rising public sector debt limit the scope for fiscal policy in the longer-term all lead to lower potential growth rates. This comes at a very unfortunate time when most G7 countries will likely suffer from negative demographic trends anyway.

In the Asian emerging markets, however, potential growth rates are likely to hold up. The boost to infrastructure improvement, now undertaken as a move to bolster internal demand, will have a long-term positive effect on productivity and efficiency in these economies. Instead of tightening regulation in the financial sector, some countries in the region are expected to continue deregulation in the financial sector, potentially allowing more efficient use of capital. This does not rule out the introduction of new regulations aimed at addressing issues that contributed to the current crisis.

Finally, unlike in the G-7 countries, demographic trends in many Asian countries contribute positively to potential growth.  -   2009 March 19  BUSINESS TIMES

Elke Speidel-Walz is deputy head, investment strategy group, Deutsche Bank Private Wealth Management

Best Asia-Pac property bets

Tokyo, Singapore and Hong Kong have emerged tops in the Asia-Pacific in a recent ranking of cities with the best property investment prospects for 2009.

They were placed first, second and third respectively as investors shifted their attention from emerging cities to mature markets, the survey by America's Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC) showed. Shanghai, which was ranked first in last year's survey, fell to fifth place this time around. Beijing fell from sixth to 12th place and Ho Chi Minh City from eighth to 13th.

Survey respondents said 2009 is the time to be 'picky about markets and partners', ULI and PwC said in the report, which was released here yesterday.

In recent years, many investors who had been elbowed out of deals in major Asian cities by core funds or highly leveraged private equity players sought refuge in secondary locations or products in an effort to find value. In today's environment, however, investors are again focusing on prime assets in major locations.

At the same time, projects in secondary markets or even in less well-positioned prime areas are more likely to run into problems, especially as slowing growth lowers demand for commercial properties.

Respondents were also asked to rate cities according to their riskiness. Tokyo, Singapore and Sydney were the three markets seen as least risky.

But Singapore was ranked seventh for development prospects and has to reconcile itself to slower growth and less demand, the report said. Bangalore, Ho Chi Minh City and Mumbai were ranked the top three cities for development prospects.

In Singapore, the strongest buy and hold recommendations were for the hotel sector - 65 per cent of respondents advised holding, 24 per cent recommended buying and only 9 per cent suggested selling. The residential rental sector was also a strong 'hold' (65 per cent). But 23 per cent recommended selling and only 11 per cent advised buying.

Singapore's office sector was rated a 'hold' by 54 per cent of respondents, while 23 per cent advised buying and 21 per cent recommended selling. For the industrial/distribution property sector, 52 per cent of respondents gave 'hold' recommendations, 34 per cent advised buying and 13 per cent said 'sell'.

The survey, based on 180 respondents ranging from global investors, property developers and brokers, looked at the investment and development prospects of 20 metropolitan markets in the Asia-Pacific region.

'Asia shares the same liquidity crisis that the rest of the world is facing,' said Stephen Blank, ULI's senior resident fellow for finance. 'Financial institutions - whether international or national, regional or local - are reluctant to extend credit as deleveraging reduces balance sheet lending capacity.'

And for Singapore, besides the credit squeeze, another problem is the seemingly generous pipeline of development projects which may be completed during a period of sagging interest from foreign business investors, said PwC tax partner David Sandison.   - 2008 December 6    BUSINESS TIMES

Asia and the art of war chests
Asian policymakers have built up protective foreign exchange reserves to ensure history doesn’t repeat itself.

Policymakers throughout Asia have had an overriding objective over the past decade. They have been determined to avoid a repeat of the crisis unleashed in 1997-1998, that exploded the myth of the “Asian miracle”, sending their economies into deep and protracted recessions. They would also rather avoid having to borrow from the International Monetary Fund again and be forced to impose a raft of measures demanded by the agency’s functionaries – measures which 10 years ago induced poverty and social unrest.

To reach this objective they stored up cash. Many governments built up “large protective buffers” against the balance of payment shocks that had put them under so much pressure in the late-90s, says Subir Gokarn, chief economist for Asia-Pacific at Standard and Poor’s, in a report published in early November. Basically, they created war chests of accumulated foreign exchange reserves, by absorbing their current and capital account surpluses. As a result, “healthy foreign exchange reserves are likely to buffer most Asia-Pacific economies during the (current) global slowdown”.

And despite foreign investors leaving regional equity markets in droves, as they either unwind yen carry trades and deleverage, or simply switch into the “safe-haven” of US Treasury securities, the drain on reserves hasn't been that severe.

Among the emerging economies in Asia, Vietnam has suffered the biggest fall in foreign exchange reserves – they now amount to almost 15% less than the 2008 peak – and among the developed economies New Zealand has experienced a 25% decline. The falls in China, Hong Kong, the Philippines and Taiwan have been non-existent or negligible.

Gokarn argues that one reason why the reserves have not declined more is that the region's emerging economies typically used the capital outflow to allow their currencies to depreciate, which meant they could offset the sharp appreciation that most of these currencies experienced in 2007.

He points out that Asia’s growth during the past 10 years has made it an “attractive destination for global investment flows that have been, in turn, facilitated by capital market reforms in many of these countries”. Large current account surpluses and net positive capital inflows would normally have put tremendous appreciation pressure on the region’s currencies – and made them exposed to a rapid depreciation if and when conditions changed.

Restraining currency appreciation

Twin surpluses should have put upward pressure on their currencies, but the authorities sold them and then sterilised the excess domestic currency in their financial systems to avoid monetary instability by issuing shorter-dated central bank bonds.

The depreciation has been particularly sharp since August 2008, when outward capital flows rose significantly. Six months ago, economists worried that any depreciation of domestic currencies might reinforce inflationary pressures due to rising commodity, oil and food prices. But, of course, the subsequent dramatic decline in these prices means that is not an issue now.

Comparisons have been made with the 1997-1998 crisis, although the problems then were largely home-grown whereas today the region is suffering from a deleveraging, liquidity drought and credit contraction that originated in the US and Europe. This contagion, which largely rebuts the de-coupling argument posited by some economists at the beginning of the year, has been exacerbated by a much closer integration between the financial systems worldwide.

The recurrent debt and currency crises associated with sudden withdrawals of Western money led to a rethinking by governments in Asian countries, inspired largely by China. In the past they’d followed orthodox thinking by borrowing from wealthy nations to finance domestic investment and drag their populations out of poverty. But China insisted that foreign capital should be injected as direct investment. Rather than simply providing debt to fund industrial development, the Chinese persuaded foreigners to build factories that couldn’t suddenly be up-rooted when confidence slipped.

Financial imbalances

Paradoxically, it has largely been re-routed Chinese savings which have financed much of China’s investment. Cash from household savings or corporate retained profits have been lent to the United States, fuelling that country’s consumer spending boom, and have then been channelled back to China as export earnings.

To ensure that its exports stayed cheap, China has kept the renminbi from appreciating beyond a prescribed rate by buying billions of dollars in world markets. Today China has foreign exchange reserves of more than $1.9 trillion and has surpassed Japan as the biggest holder of US treasury securities. Other Asian countries have adopted a similar strategy. For example, India entered the current crisis with around $300 billion of foreign reserves, which provide a comfortable level of “self-insurance” against capital flight.

This has led some commentators, such as the economic historian Niall Ferguson, to argue that these “financial imbalances” are the main cause of the excesses that produced the current crisis. Asia kept lending and the US (and Europeans) kept borrowing. The Asian savings glut supported a surge of consumer and corporate leverage, funding hedge funds and private equity firms, and of course, the US mortgage market which fuelled the rapid growth of derivative instruments.

Nevertheless, as Gokarn says, “it is now evident that for almost all the region's economies those handy reserves have allowed countries to avoid a potential balance-of-payments meltdown, especially as the flow of capital has reversed so sharply in the past few months”.

Whether this will hold true for the future is another matter. There is a standard Greenspan-Guidotti rule that says that reserves should cover external debt falling due within one year – but that is insufficient when foreign borrowings by private companies and overseas holdings in equity markets are taken into account. Also, debt coverage can soon disappear.

Korea, for instance, had about $240 billion of reserves – the sixth biggest in the world – at the beginning of November, which easily covers the $80 billion of short-term debt owed and even exceeds the $235 billion total external loans owed by Korean banks. But the central bank has been spending up to $280 million a week to inject liquidity into the country’s banking system, and in the first six months of the year, net foreign direct investment turned negative for the first time since 1980 as investors pulled out a net $886 million, according to the Bank of Korea.

Spending the reserves

“For Asia, the problem is not inadequate foreign exchange reserves,” says TJ Bond, Asia economist at Merrill Lynch. “It is uncertainty about how existing reserves will be used to meet maturing debt obligations and foreign sales of domestic assets.” Already, however, some of that uncertainty is being resolved.

Transparent foreign exchange intervention and currency swap agreements between the US Federal Reserve and Korea and Singapore worth $30 billion each have helped. Plus, regional currency swap agreements between 13 Asian countries (led by China, Japan and Korea) have created a pool of foreign exchange reserves to be tapped to protect their own currencies – an extension of the 2005 "Chiang Mai Initiative". The deal allows them to lend each other money at favourable terms if help is needed to stabilise exchange rates.

Capital controls restricting resident capital flight might also be an option. This was the approach taken by Malaysia a decade ago which protected the country from the worst of the crisis which afflicted other Asian economies.

But another problem is that by building up foreign exchange reserves by promoting export earnings through a competitive exchange rate, Asian economies make themselves vulnerable to growth slowdowns in the countries they export to.

On the other hand, although currency depreciation won’t help exporters as economies throughout the world fall into recession, they should be able to take advantage of any eventual recovery in consumer spending in major export markets.

Certainly, intraregional trade has lessened the export dependence on the US over the past decade, as richer Asian countries have proved increasingly significant markets for Asian exports. But, this affluence has had a cost which would make the region especially vulnerable, had it not been for policies introduced to prevent a repeat of the devastation that afflicted the region at the end of the last century.
   - 2008 December 2  FINANCE ASIA

Advantage Asia  

Asia should leverage on the fact that its people and companies are comparatively debt free, and unlock its innate spending and investment power for the benefit of the region.

We are witnessing the greatest global financial upheaval in almost eight decades since the Great Depression. Nearer home we were ravaged by the Asian crisis in the late '90s and Latin America suffered its own 'tequila' crisis. However, neither of these crises compare in scale and impact to the current one that originated in the developed world. Whilst the emerging market crises led to the destruction of a few tens of billions of dollars, the current turmoil could end up costing trillions. If the former was a tremor, the latter is a veritable earthquake measuring 9 on the Richter scale.

What caused the current crisis?

It does not matter whether you are an individual, company or country - when you spend more than you earn, and continue the pattern for many years, eventually you will go bankrupt. It all started with easy availability of credit and banks paying scant regard to pricing for risk. Any individual irrespective of how much he or she earned (a proxy for repayment capacity) could borrow to buy a house. Housing prices were supposed to keep going up and up, so repayment capacity was a non-issue!

Moreover, if the borrower did not have the cash to meet his mortgage payments he could always borrow against any one of his many credit cards (occasionally from the same lender), and pay a nominal monthly amount to keep his card obligations 'current'. The banks that made these loans could also rely on some financial alchemist to pool thousands of such loans, get them rated and then sell that pool in the form of securitised loans to institutional investors. As it turned out, some of these structures became financial weapons of mass destruction.

Also on the institutional side, banks were willing to extend unsustainable levels of leverage to buy out firms that took companies private. Underpinning the leverage was the assumption that the revenues and profits of the companies would grow nicely ad infinitum. Then the tide ran out. As they say, it is only when the waters recede that you know if the swimmer is wearing trunks.

Vacillation and denial

A critical aspect of the initial phase of the current crisis was the vacillation of financial institutions and policy makers, particularly in the United States. At first there was widespread denial that a crisis was forming. Then bankers prematurely declared the crisis over - as late as April 2008 the CEO of a major institution averred that the sub-prime problem was 'in the eighth inning or maybe the top of the ninth of a nine-inning baseball game'.

On the policy side, recognising systemic risk, the US government belatedly but rightly stepped in to officially support Fannie Mae and Freddie Mac, the institutions that fuelled the mortgage boom. A week later, however, reverting to free market principles and moral hazard concerns, they let Lehman go bankrupt. A few days later it was back to systemic risk with the bailout of AIG. Congress then voted against the administration's initial US$700 billion bailout plan, adding to erosion in market confidence.

Since then, governments worldwide have stepped up activity. The US bailout plan has been passed by the Houses. UK led the way in taking decisive, sure-footed action to recapitalise and add liquidity to the banking system, a plan that has received plaudits and is being copied by others. There have been a slew of government guarantees of deposits in various countries and a coordinated interest rate cut among major central banks.

The immediate lesson seems to be that when you have an extraordinary situation you need to act boldly, quickly and decisively, and not get bogged down by ideology and doctrines. When you have a fire you need to get the fire extinguisher out, and worry later about the longer term consequences of the chemicals on the ozone layer.

How is all this impacting Asia?

Over the last year it has been a tale of two worlds: boom across Asia and some emerging regions, in contrast to ever deepening financial crisis in the West. However, years of globalisation have placed Asia closer to the global economy. We are no longer an island. Large domestic demand, fiscal prudence, significant foreign reserves, low external indebtedness and the acceptable leverage of the corporate sector will allow the region to cope better with the financial fallout, but Asia will not be entirely insulated. The good news is that post the 1997/98 crisis, Asian countries and companies sharpened their acts and got rid of the flab. This will now serve them well. Sweet indeed are the uses of adversity.

Lessons from the crisis

What are some longer term lessons that Asia should remember from 1997 and learn from the current crisis?

Although Asia, as a region, is generating huge reserves and surpluses, most of this is recycled through Western financial institutions, some of whom are currently shut for business. Very few of the top 50 banks and investment banks in the world are from emerging markets, and the few who make the list like the Brazilian and Chinese are too domestically focused to play a significant role outside their national confines. Is the time ripe for Asia to use some of its surpluses to build its own global financial champions? This would require a level of regional cooperation that has not been evidenced to date.

One of the many lessons of the 1997/98 crisis in Asia was the need to focus not just on solvency but also liquidity. Singapore already has one of the largest US dollar interbank markets in the region. Could Singapore further expand to become the pre-eminent dollar liquidity provider outside of New York? Also, we learnt it is best to deregulate one's financial sector at a pace suited to one's domestic needs. Deregulating too quickly without the appropriate institutional infrastructure can be as bad as not deregulating. However, it would be a pity if Asian economies used the cloud cover of the de facto nationalisation of many US and Western banks to derail or slow down the deregulation of their own financial and other sectors. Now is perhaps the time to press home Asia's comparative advantage by deepening and deregulating its economies.

The financial sector should be allowed to channel the region's high savings and reserves into increased investment, to allow people to borrow against future income and firms to access markets when and where needed. We need to leverage on the fact that our people and companies are comparatively debt free, and unlock our innate spending and investment power for the benefit of our region.

If Asia and the Middle East combine their collective intellectual and money power, they could create over time genuine alternatives to 'NyLon' (New York and London) as global financial centres. Asia and the Middle East have abundant capital as evidenced by the fact that their sovereign wealth funds have recently been the major providers of new capital to stressed Western institutions. However, what the two regions lack is some of the other enabling ecosystems. These would include further deregulation and opening up of financial, legal, insurance and many inter-related sectors and a focus on making some of these cities even better places to live.

When the majority of MBA graduates at major Western schools start telling campus recruiters 'Shanghai, Mumbai, Dubai or bye-bye' we'll know we have cracked it.  - 2008 November 1   BUSINESS TIMES       The author is V Shankar  Member-group management committee  Standard Chartered Bank

Rising Powers of Asia Sitting On A Growing Stash of Cash

Could there be a more telling sign of Asia's rise – the “development bank” from across the world coming to the rescue of an American financial titan. It is becoming a common story these days.

Citibank was bailed out by the government of Singapore in combination with the Kuwait Investment Authority and a Saudi prince. Morgan Stanley had help from the China Investment Corp., UBS from the Government of Singapore Investment Corp. and Merrill Lynch from the Korea Investment Corp. The China Development Bank recently shook up German finance by putting in the highest bid for the giant Dresdner Bank, only to see Germany's Commerzbank win the takeover prize instead.

As Gerard Lyons, chief economist at Standard Chartered, told me on the phone from London yesterday, “the balance of financial power appears to be shifting from the West to the East.”

With the latest surge in Asian money into the troubled banks and investment houses of the Western world comes the usual hand wringing about how the crown jewels of Western finance are falling into foreign hands.  But isn't this supposed to be how things are meant to work in an open, globalized financial system? Money flows from those who have it to those who need it, helping both sides prosper.

That is exactly what is happening today. Hit by the subprime mortgage crisis in the United States, then a global credit crunch, some of the top names in global finance are passing the hat. It just so happens that at the very time that these storied institutions need cash, the rising powers of Asia are sitting on a growing stack of it. China's success at selling to the markets of the world has endowed it with an incredible $1.8-trillion in foreign exchange reserves. The little city-state of Singapore controls vast wealth through its Temasek Holdings.

Such sovereign wealth funds – government-controlled investment houses – now control more than $3-trillion in assets. China's alone controls $200-billion. Some of the richest of these funds are in Asia, though Middle Eastern oil states and oil-rich Norway are also big players.

As the money piles up, the Asians are naturally trying to protect themselves by diversifying their holdings. The credit crunch has provided them the perfect opportunity, opening the doors of troubled finance houses in Europe and North America. It is a match made in heaven. Katinka Barysch, deputy director of the Centre for European Reform, said yesterday that if you're a troubled New York or London bank, “you're just happy that there's someone out there who's sitting on $500-billion to $600-billion and willing to help you out of your financial crisis.”

Fears that the Asians will come to dominate the financial capitals of the West are overblown. Most sovereign wealth funds and similar entities are conservative, long-term, value investors looking to improve their investment returns, not run roughshod over someone else's country. Their increasingly bold forays into global finance are a sign not only of their rising wealth but of their desire to learn how to play the game of global capitalism. That can only be a good thing.  -    2008 September 3    GLOBE & MAIL

Barclays Wealth survey says more individuals in Asian and emerging markets would like to up property allocation

Mass affluent and high net worth individuals in Singapore would like to invest more into property, a survey by Barclays Wealth has found. But those surveyed also indicate that in a time of increased economic volatility they would like to raise their allocations into cash, and take on more risk.

Barclays has just published the latest in its series of 'Wealth Insights' publications, this time looking into behavioural finance aspects of clients' attitudes. The survey has found that on property, more individuals in the Asian and emerging markets say they would like to invest more, compared to those in the UK, Germany and Spain.

The survey, done together with the Economic Intelligence, was conducted between March and April this year. Sentiment here on property, however, has dampened markedly this year, alongside a bleaker economic outlook. Roughly 2,300 investors were polled, with investable assets of between £500,000 and over £pounds;30 million.

On property, 57 per cent of those in China indicated they want to raise allocations, compared to 48 per cent of clients in India and 45 per cent of Singaporeans.

Barclays Wealth head of behavioural finance, says a drop in property prices may not dampen desire by very much. 'Our economic research people tend to feel that perhaps the lower availability and depth of (alternatives) is one reason for the property focus in Asia.'

On volatility, he says: 'Data seems to suggest that Asian investors treat volatility more opportunistically, rather than cautiously.' This may be partly because investors see the current downturn as a 'dip' in an upward trend for Asia and the emerging markets.

'In these markets up to last October, the recent trend has been very strongly positive, and individuals are very strongly influenced by trends. In mature markets, data extends much further back and they see this as a cyclical dowturn rather than a dip in an uptrend.'

Another factor that may favour risk taking is that many in Asia are entrepreneurial, first or second generation wealth owners. 'Even with the recent and fairly strong drop in Asian markets, many people are so much wealthier than they have been in recent memory...This inclines people towards a more opportunistic way of thinking.'

Age appears to play a part in the desire to allocate to cash. Younger respondents under 50 are more likely to move to cash in a market upheaval, than those over 50. Younger respondents were also more likely to trade more frequently. This is likely to reflect the fact that older investors have more experience of previous cycles and may be less nervous in the face of volatility.

In terms of monitoring their portfolios, 71 per cent of the individuals monitor their overall portfolio at least monthly, and 41 per cent monitor either weekly or daily. In the study, Mr Davies says that the frequency of monitoring a portfolio is linked to an investor's level of composure. Those with lower levels of composure are likely to watch their investments more closely.

Those who monitor more tend to focus on relative benchmarks rather than absolute ones. Individuals' perception of their own skills, and the extent to which they think their skills contribute to success instead of luck, also play a part. Wealthy investors who attribute success to their skills are more likely to monitor and take risks.

The study also looked into clients' sources of advice. It found that those with assets greater than £30 million are more likely to seek advice from a business adviser. Those with between £ 500,000 and £ 1 million in assets, however, look to the media. This suggests that as individuals gain wealth, they are more likely to rely on professional advice.

In terms of gender differences, women tend to be more likely to turn to family and friends, and men seem more likely to turn to the media. This is partly borne out in the Singapore portion of the survey, which found that 47 per cent of women cite family and friends as information sources. Among men, 38 per cent cite their peer group.

In addition, more than 70 per cent of men in Singapore believe that increasing the value of their portfolios is the most important outcome in wealth creation and protection. The majority of women (65 per cent), on the other hand, see regular income as the most desirable outcome.

Globally men displayed higher levels of confidence than women on a broad range of issues, including domestic equities, tax, bonds and private equities. While the Barclays survey did not look into performance, academic studies have found that women's portfolios tend to do better, as they are less likely to trade.

Mr Davies says Barclays is in the process of fine-tuning a risk profiler for Asian clients. 'We believe that most assessments that banks use is not good, not behaviourally or statistically robust, and ask the wrong questions. We'd like to make a distinction between long-run and short-run financial objectives. We need to understand clients' composure level, the degree to which they are comfortable with taking risk in the financial market context.' - 2008 September 3   BUSINESS TIMES

Asian market fallout set to get far worse
Property, stocks will be hit bad as foreign capital is pulled

Fallout in Asian financial markets and institutions from the sub-prime crisis could become more serious now as foreign capital, from the US and other leading markets, is withdrawn, speakers at a symposium in Tokyo predicted yesterday. Asian property markets - in China and Vietnam especially - are likely to be hit hard while stock markets could take a battering, along with banks and other financial institutions, they suggested.

'There may be a sudden shift in capital flows as a result of fallout from the sub-prime crisis,' warned South Korea's former commerce minister Duck Koo Chung at the conference organised by the Asian Development Bank Institute (ADBI) and the North East Asia Research Foundation (NEAR).

'Coming weeks will be crucial' in this regard, Mr Chung later told Business Times.

ADBI dean Masahiro Kawai, who told the conference that 'global financial turmoil may continue longer than hoped for', suggested to BT that a flight from Asian property market investment by banks, investment funds and various stock market vehicles could damage these institutions as the property boom unwinds.

The warnings came as a sobering counter to the widely held view that Asian markets and institutions are likely to escape relatively unscathed from the sub-prime credit crunch that has wrought havoc upon major investment banks and others in the US and Europe. The theory of a 'decoupling' of Asian economies from outside problems has similarly been shattered by recent events.

Recent weeks have seen the collapse of a series of property development firms in Japan as US and other investors pulled funds from them. The most recent collapse - developer Urban Corp - marked Japan's biggest corporate bankruptcy this year and the implication of yesterday's warning at the conference was that firms elsewhere in Asia could be facing a similar fate.

Mr Chung told BT that property markets in China and Vietnam are especially vulnerable, while South Korea's property market is also facing problems along with those of other East Asian economies. 'There will be another round of credit crisis in developing economies', as money is 'pulled', he said. Foreign direct investment as well as portfolio investment in many Asian economies has been directed into property, added Mr Chung, who is now chairman of NEAR.

The cause of the US dollar's strength in recent weeks has been partly to do with the repatriation of investment funds from overseas, and this process could accelerate now as a fresh credit crunch threatens, in spite of injections of financial liquidity by the US Federal Reserve, Mr Chung commented. 'This will lead to a further correction in asset markets' in Asia and elsewhere, he suggested.

'We have been planting the seeds of the current crisis for many years,' said Mr Chung, who noted that Asia had supplied much of the financial liquidity that fed asset bubbles in the US and elsewhere. Now that US credit markets have seized up, the Fed is having to pump liquidity but this 'can only jeopardise the anchor position of the dollar' in global financial markets.

Recent Fed actions 'imply an expectation of continuing stress in financial markets', and meanwhile, economic slowdown has hit both Japan and Europe, Mr Kawai noted at the conference.  - 2008 August 29   BUSINESS TIMES


Asian prime office prices may fall 10%

Asian real estate prices may fall further and prime office values decline 10 per cent before year's end, Singapore-based property investor Pacific Star Group said.

'Most markets are peaking over the next 12 months, or even trending downwards,' said Frank Vaessen, president of fund management at Pacific Star, which manages US$3 billion of assets globally. 'Broadly speaking, the bottom could come sometime in late 2009 or early 2010.' Faltering economic growth and the global credit contraction may ease demand for office and retail space in Asia. Rising inflation and falling equity markets may also dampen sales of homes in the region.

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

High-flying investment bankers moving from US to Asia

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

World's Highest Apartment Rents

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.

Singapore , which positions itself as a Southeast Asian business hub, saw Asia's biggest year-on-year rental increase of more than 30% last year, the survey by human resources firm ECA International showed.

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  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

Growth in S-E Asia property market sustainable
The property markets of South-east Asia are expected to sustain the buoyant growth seen in 2007, says DTZ Debenham Tie Leung.

DTZ said that residential markets in the region are expected to continue to grow, 'driven by steady economic expansion, increasing affluence and increasingly attractive projects as developers strive to refine concepts'.

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.

New flavours

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.

They sold the most during June and July (£5.9 billion) and the least during April and May (£1 billion).

Energy stocks and financials experienced the heaviest selling, as investors opted for defensive stocks, such as utilities and healthcare shares.

The study captures the trading activity of more than 1.6 million private investors. - Reuters  March 1, 2007

First Asia property derivatives traded in Hong Kong

2007 Feb 27 : HONG KONG/LONDON - Dutch investment bank ABN AMRO and Hong Kong financial group Sun Hung Kai (SHK) Financial said on Tuesday they had traded Asia's first property derivatives -- a Hong Kong residential property swap.

ABN has synthetically bought exposure to Hong Kong's notoriously volatile housing market, paying SHK Financial the Hong Kong interbank offered rate (Hibor) plus a spread in return for the change in a newly launched home price index.

The transaction's notional size was 'less than' HK$100 million (US$12.80 million) and the tenure was one year, according to a source close to the deal. The source declined to give pricing details.

The deal is based on the Hong Kong island residential price index developed by the University of Hong Kong, which rose 4.3 per cent last year to 116.1 points.

The index is up 90 per cent since an outbreak of the Sars respiratory disease ravaged Hong Kong's economy in 2003, but still 36.4 per cent below a peak reached in 1997.

'By using this instrument, Sun Hung Kai Financial ... has demonstrated a clear endorsement of the future potential of property derivatives for Hong Kong,' Philip Ljubic, a director of ABN AMRO, said in a statement issued in London and Hong Kong.

ABN said the trade was the start of 'something big' in Asia and that it planned to build a global property derivatives business.

Property derivatives have been pioneered in Britain, where a 3-year-old market offers over-the-counter trading in swaps based on the total returns over a set period on property indexes compiled by Investment Property Databank (IPD) in exchange for the London Interbank Offered Rate (Libor) plus a spread.

The market enables investors to gain exposure to a property market quickly and with none of the associated transaction costs such as stamp duty, and can be used as a hedging tool.

The UK property derivatives market remains tiny compared with other derivative markets but it has grown rapidly -- it is widely expected to have quadrupled in size to almost 3.6 billion pounds (US$7.07 billion) last year. -- REUTERS     2007 February 27


Foreign funds go heavy on property
Invested $4.55b in the first half 2005 in Singapore

European and US funds have invested heavily in Singapore's real estate sector, pumping in $4.55 billion in the first half of 2005, says global property consultancy Jones Lang LaSalle (JLL).

And if the momentum keeps up - amid heightened foreign interest in the market - JLL predicts that full-year growth could easily hit 20 per cent.

This comes after 20 per cent growth last year, when investments totalling $5.3 billion made Singapore the fifth-largest Asia Pacific property investment market.

Most foreign investors are interested in the prime office and high-tech industrial and logistics sectors, JLL Singapore's regional director and head of investments Lui Seng Fatt told BT. Transactions last year included office space at 78 Shenton Way and Sinsov Building in Market Street. Also on investors' shopping lists is prime and suburban retail space, with Whitesands Shopping Mall and a stake in Ngee Ann City being sold to funds.

But with keen competition from Singapore's real estate investment trusts (Reits), Mr Lui said the number of investment-grade products in the market is shrinking. Investors are now turning their attention to opportunities in Grade B investment properties.

Residential properties are also sought. For instance, Ferrell Premier Real Estate Investment Fund bought 80 units of CapitaLand and Hwa Hong Corporation's Rivergate apartments in Martin Road. Mr Lui said European funds have a slight edge in terms of activity, with Dutch funds ING Real Estate Investment Management and German insurer Ergo Versicherungsgruppe having been more aggressive recently.

But US funds aren't dormant either. He said there are big names here, including insurance-linked funds like Pramerica Real Estate Investors (Asia), AIG Global Real Estate Investment Corp, GE Real Estate, Lehman Brothers and Colony Capital. JLL says new entrants to watch are Middle Eastern and Hong Kong-based funds. They have not made any investments yet, but are busy establishing themselves.

Hong Kong tycoon Li Ka-shing's Cheung Kong Holdings teamed up with the Dubai Islamic Bank last year to start a syariah-compliant property fund. And last month, Pacific Star Group - a joint venture between Ergo and former Singapore-based real estate investment banker Jeff Tay - partnered Islamic banking group Kuwait Finance House to launch Asia's largest Islamic real estate fund, Baitak Asia Real Estate Fund. Both funds have plans to invest in Singapore, among other countries.

'Singapore is always a gateway city,' said Mr Lui. 'For instance, the Monetary Authority of Singapore has something called the 'Financial Sector Incentive Scheme'. For anything that you incorporate in Singapore, invest in overseas, you can pay lower taxes. So tax regime, transparency, governance - all these make Singapore a good base and keep Singapore activity at high levels.'

JLL's director of Asian Capital Markets Group adds: 'Singapore, despite its size, remains attractive because of its liquidity, transparency and efficiency. It is often targeted by institutional investors or those seeking a first Asian investment.'

Singapore's growth comes amid a bullish real estate investment climate in the Asia-Pacific. Last year investors poured some US$48.3 billion into the region, a 74 per cent increase from 2003. JLL says 24 per cent of that figure involved cross-border investment. The office market was the most highly traded asset, accounting for 45 per cent of all capital market flows in the Asia-Pacific.

Globally, investment in real estate is similarly strong. JLL reports that US$457 billion of transactions were recorded last year - 12 per cent above 2003.       - by Alexandra Ho    SINGAPORE BUSINESS TIMES      29 July 2005

Taiwanese and Hong Kongers are more sophisticated investors than the Singaporeans who tend to weigh risks against profits a little too carefully, according to a new survey.

The survey of 2,500 fund and stock investors in the three Asian markets was commissioned jointly by financial firms Citigroup, Alliance Capital Management and Permal and released on Tuesday.

Investors in Hong Kong are bold in purchasing stocks and funds while taking their investment losses more calmly, Citigroup said in a statement.

Their Taiwanese counterparts 'are fairly willing to take an investment chance (but) feel most unhappy about investment losses', it said.

'Singaporeans are... inclined to sell performing investments too soon and hold onto their underperforming investments for too long,' it said.

'They are less savvy in combining different financial decisions in a portfolio approach, focusing instead on gains and losses of individual opportunities.' - AP     30 June 2005

Investor Profiles of West & East Differ

Investors in Hong Kong, Taiwan and Singapore are more likely than their American counterparts to regret losses from recommendations by financial advisers, a study on Asian investor psychology commissioned by Citibank has found.

``People in Hong Kong appear to be deeply suspicious of financial advisers,'' said Anil Gaba a professor of decision sciences at INSEAD, a business school, which has campuses in Singapore and Fontainebleau in France.

Gaba, who conducted the study, said Hong Kong is different from Singapore and Taiwan as investors here are just as regretful of the moves they did not make as they were of the loss-making moves they made.

``The comission regret from missing an opportunity is quite palpable,'' Citibank's regional director of investments business for Asia Pacific Vineet Vohra said.

He said it was a sharp difference from the United States, where investors tend be more regretful of bad decisions than of missed opportunities.

The study also found Singapore to have the most overconfident investors. Gaba said they were more likely to sell rising stocks too early and to hold onto losing stocks too long.

Gaba said the high level of overconfidence in Singapore might be chalked up to the country's lack of political turmoil.

``Singaporeans, in general, have been less exposed to uncertainty. They have been living in a more stable environment than Taiwan and Hong Kong,'' Gaba said.

Vohra said emotions and irrational behavior play a important role in investment decisions. -   THE STANDARD   02 July 05 2005

Money returns to Asia

Six years ago this week, Asia-Pacific leaders met in cold, rainy Vancouver amid the region's worsening financial crisis. The weather provided an apt backdrop for the gloomy tone of the discussions.

The leaders of those same 21 Asia-Pacific nations are currently in Bangkok coping with the city's sweltering heat. The weather contrast from Vancouver in 1997 is as extreme as the economic conditions that prevailed in Asia then and now.

Asia is home to the world's hottest economies, and the amount of investment pouring in almost seems reminiscent of the heady days of the mid-1990's. The United States, by contrast, is struggling with a recovery that appears to be more spin than reality, and Europe remains mired in double-digit unemployment.

Even deflation-plagued Japan is home to a massive rally in share prices. The Nikkei 225 stock average may have experienced only half of the gain registered by the Thai benchmark so far this year, but Japan's recovery, tenuous as it is, is a stark reminder of how much has changed since 1997. It became clear during that year's summit meeting of the Asia-Pacific Economic Cooperation forum that the country's fourth-largest brokerage - Yamaichi Securities - was poised to fail, shining a spotlight on Japan's fragile economy.

But some sobriety is in order here.

Asia's economies are attracting investment for good reasons. After years of reform, many are on a solid footing. Foreign debt levels are down from the time of the crisis, while financial systems are stronger and corporate balance sheets are cleaner. Political stability also is serving Asia well, as are rising living standards.

But the region's double-digit stock gains this year suggest that optimism is running ahead of fundamentals. There is no doubt that asset values should be up, but do improvements in Indonesia warrant a 62 percent stock rally? Should Thai shares be up 78 percent? Or South Korean and Philippine shares be up 25 percent and 31 percent, respectively?

Rising shares are creating wealth, allowing companies to raise funds and giving more chances to sell state-owned assets. But another stock bubble that destabilizes the region - akin to the one in 1997 - is hardly what Asia wants. It may just have too much of a good thing on its hands.

If stock prices avoid overheating this time around, Asia's post-crisis recovery could be a robust and long one. But if today's stock euphoria proves to be irrational exuberance all over again, the region can forget about attracting foreign capital for a long, long time. Once bitten, twice shy. Twice bitten - well, you get the picture.

Especially troubling is the disconnect between short-term and long-term investment. Too much so-called "hot money" flowing into markets was a major cause of the last Asian crisis. Short-term in nature, it tends to leave at the slightest sign of trouble and it has taken Asia years to draw it back.

At the moment, a lot of short-term capital is flowing this way; longer-term foreign direct investment is flowing to China, but little of it is going elsewhere in Asia.

Unfortunately, the APEC confab this week is unlikely to devote much time to discussing such risks. They are being eclipsed instead by debates over currency levels, funding the reconstruction of Iraq and the global war on terrorism. In fact, aside from debates over the currency policies of China and Japan, and terror risks, most of Asia is off the hook this year in terms of criticism.

The World Bank last week upgraded its assessment of Asia's economies, citing China's rapid pace of growth, lower world oil prices and an apparent end to the three-year slump in technology industries. Such trends are increasing the clout of Asian countries and creating an economic bloc that someday could compete with, or even rival, the West.

"The global economy isn't set up for an Asian bloc, but it's coming, perhaps sooner than many would like to believe," says Avinash Persaud, director of GAM-Persaud Global Investment Fund.

Marc Faber is even more bullish on Asia in the long run. While the Hong Kong-based investment adviser has concerns in the short term - like worsening problems in the United States that may filter this way - he thinks Asia is the place to be in the years ahead.

The region's growth potential, low stock valuations and favorable demographics continue to make it more attractive, Faber argues. Most global investors, meanwhile, are underweight in Asian equities because of their relatively small role in indexes like the MSCI World Free index.

The combined weighing of the entire Asia region - which boasts 3.6 billion people and an emerging economic bloc - is 12.1 percent, Faber notes. As Asian economies continue to grow and more investment flows this way, so will the region's importance grow among equity investors. That re-weighting of portfolios should bolster Asian markets at the expense of Western ones.

Yet Asian officials must avoid boom-and-bust cycles in order to reach that potential. Let us hope that today's stock rallies don't morph into tomorrow's bubbles. The risk can't be ruled out.    - Commentary by William Pesek Jr.    Bloomberg News   20 Oct 2003

Asian property stocks "hotter than hot"
Asian property shares outpaced their European and American counterparts on the Global Property Research GPR 250 index in September, rising 7.4 percent on strong gains by developers in Hong Kong and the Philippines.

Describing Asian property stocks as "hotter than hot", Amsterdam-based research firm GPR said in a statement the Asian sector had risen 51.7 percent in the last six months, against a 25.2 percent rise in the MSCI Pacific stock index.

But analysts said some stocks, especially those in Hong Kong, could now be overvalued.

Philippine property firms tracked by GPR, which include Ayala Land Inc , climbed 14.6 percent in September.

Hong Kong companies, including Sun Hung Kai Properties and Cheung Kong (Holdings) , rose 11.9 percent, while the Japanese and Singapore sectors both gained 4.2 percent.

Australia, where the sector fell 2.5 percent in September, was the main weak spot in the region.

Fund managers said many property stocks in Asia had risen from a low base, having been battered during an economic downturn in the last couple of years. But investors were now betting on a recovery.

"The theme strongly pushed now is the reflation story in Asia," said Peter Hames, investment director at Aberdeen Asset Management in Singapore.

"Places like Singapore and Hong Kong have had a tough time economically, partly because of SARS, and shares were depressed," he said.

"Now people are playing on recovery and it has benefitted big Hong Kong developers like Sun Hung Kai.   Generally speaking, the reflation story is over the next two to three years, not just six months."

While investors piled into the Asian property sector, property stocks in the GPR Europe index rose just 0.2 percent in September and are up 12.8 percent this year, while in North America they gained 2.7 percent in September and are 24 percent higher in 2003.

Analysts say some Asian stocks, especially in Hong Kong, have climbed faster than fundamentals merit.

Douglas Sung, analyst at JP Morgan in Hong Kong, said the Hong Kong property sector was trading at around 18-20 times earnings, compared to an average 12-15 times in the last 10 years.

"We think they are overvalued. There's still a loss of market value and it's tough to see how developers will get pricing power back," Sung said.

"It's a question of margin increases -- the market has factored in a fast rise, but I think it's likely to be gradual."

Hong Kong's economy is showing signs of recovery after plunging in the second quarter into a third recession within six years largely as a result of the deadly SARS virus. But property values are still as much as 65 percent below a peak in 1997.

GPR 250 LOCAL RETURNS IN ASIA-PACIFIC - SEPTEMBER (PCT)

             One month    Six months   y-t-d   One year
 Asia           7.4          51.7       32.7     25.0
 Australia     -2.5          -0.6        1.5      7.4
 Hong Kong     11.9          63.1       42.0     47.5
 Japan          4.2          45.3       26.2     10.5
 New Zealand   -1.0           0.8        4.7      8.6
 Philippines   14.6          37.7       41.5     15.3
 Singapore      4.2          38.6       34.7     26.5
 MSCI Pacific   1.3          25.2       16.8     10.2
 Global stocks -1.5          19.8       13.1     19.9
 (MSCI)
 Global bonds   1.6           0.9        2.3      3.6
 (JP Morgan)           
-  By Dominic Whiting, Asia property correspondent     Reuters   Yahoo! Asia    8 Oct 2003

Asia: Is This the Rebound?

Earlier this year, Zip drive maker Iomega Corp. laid off 15% of the workers at its factory in Penang, Malaysia. The U.S. economy remained weak, and orders for the San Diego company's CD and Zip drives had dried up. Now, to the delight of the company's Malaysia-based execs, the order drought seems to be ending. Such customers as Philips Electronics and Sony Corp. are once again in the market for Iomega products, and the Penang factory is humming seven days a week. Says a surprised Iomega (Malaysia) President Joseph J. Adams: "Things look very good at this point."

Not long ago, Adams and other executives in Asia were expecting gloomy conditions for another two quarters at least. Few predicted the U.S. economy would recover so fast. And while the rosy forecasts could give way to a more sober assessment, Asia seems set to profit from a revival in U.S. demand for the region's chips, PCs, DVD players, petrochemicals, and home appliances. "By July or August," says P.K. Basu, a Singapore-based economist with Credit Suisse First Boston, "exports should be growing at a spanking pace."

As a result, growth forecasts are being revised upward--and some analysts see a solid recovery well into 2003. Excluding Japan, Asia may grow 7% this year. That's up sharply from last year's 5.1%, thanks to powerhouse China. Despite the higher growth, inflation should fall to less than 2%. "I am quite sure Asia will recover this year," says Takuma Hatano, executive director for Asia and Oceania at the Japan Bank for International Cooperation in Hong Kong.

If this feels like deja vu, it should. Three years ago, Asia's export-dependent economies roared out of the regional financial crisis that had laid them low in 1997. While many forecasters expressed amazement at the rebound, skeptics argued that Asian nations were merely exporting their way out of trouble and juicing domestic demand with deficit spending.

Sure enough, the skeptics were right. As the likes of Thailand, Malaysia, and the Philippines racked up impressive export tallies, their policymakers and executives proved unable to fix structural weaknesses in their financial and corporate sectors, which were still burdened with mountains of debt. Because banks weren't lending, these nations never kindled domestic demand. As a result, when the U.S. sank into recession, most of Asia tanked, too.

With growth expected to start again, the question is whether the region has begun enough structural reform to reduce its unhealthy reliance on the American market. Will Asian nations use this nascent rebound to achieve self-generating growth? Or are they doomed to be a virtual economic colony of the U.S., contracting pneumonia every time America catches a cold?

The short answer is that some nations seem set to get it together--and some don't. Japan? Not likely; the economy is in its third recession in a decade. Ditto for Indonesia, which is hobbled by inept policymaking, and Hong Kong, whose currency link to the U.S. dollar is holding back growth. "We have a really wide variation in growth rates, from 1.5% to 7%," says Salomon Smith Barney economist Cliff Tan in Singapore. "It's definitely not like the old days where a rising tide lifted all boats." The countries likely to prosper the most from a U.S. rebound are China, South Korea, Malaysia, Singapore, the Philippines, and Taiwan. Even so, growth in some of these economies will remain anemic--certainly compared with the rates of the 1990s--meaning they may not be able to generate sufficient lift to escape the global boom-bust cycle. "The whole region is caught up in the recovery euphoria," says Tan. But "as the Fed begins to tap on the brakes in the second half of this year, you are going to see who has legs."

Clearly, those nations that have been restructuring and reforming in recent years will lead the pack. At the top of the list: South Korea. Under President Kim Dae Jung, the country has curbed the worst excesses of the chaebol, which once absorbed much of the nation's capital. The government also recapitalized Korea's banks enough to get them functioning again, and by the end of last year nonperforming loans were just 3.5% of total credits, down from 13% in 1999. Hence, the banks are healthy enough to lend to Korean consumers for the first time ever, and domestic consumption is expected to account for as much as 80% of economic growth this year.

For the results, look no further than the malls and car dealerships of Seoul. Lee Min Sun, a human resources manager at a foreign company, recently bought a $235,000 flat and a $15,200 locally built Nissan. "Of course, I wouldn't have bought them if I thought the economy would turn sour," says Lee, 42. To help finance the purchases, she took out a $30,400 loan at 6.5%, the lowest interest rate in decades. Consumers such as Lee are prompting economists to raise 2002 growth forecasts to 5% vs. 3% last year.

Korean manufacturers of every stripe are also getting an export lift. Battered South Korean chipmaker Hynix Semiconductor Inc. posted its first operating profit in almost a year during the first two months of 2002. Samsung Electronics says it's hoping to more than double last year's $2.2 billion profit, thanks to higher chip prices and strong demand for its mobile phones and other consumer electronics. "Things look much more promising than we had thought," says Chang Il Hyung, senior vice-president at the world's largest memory chipmaker. And it's not just high tech. Kia Motors Corp. is targeting a 13% increase in shipments to the U.S. this year, to 254,000 vehicles, following a stellar 39% gain in 2001. Thanks to robust local demand, Pohang Iron & Steel Co., the world's largest steelmaker, just announced price hikes of almost 6% on shipbuilding and construction material, the first since 1998.

Given Korea's dominance in chips, analysts expected it to rebound first. What's surprising are the patches of strength in Southeast Asia, a region many economists had written off as being incapable of either competing with China or fixing its manufacturing base and financial systems. Yet consumer spending has been unexpectedly robust in Southeast Asia. Record-low interest rates, banks' new willingness to lend to consumers, and pent-up demand is powering domestic consumption--reducing a dangerous reliance on exports.

Consider Thailand. It is still plagued with excess capacity in petrochemicals, cement, and commercial real estate. But the banks have cut the crushing burden of bad loans from $72 billion at the peak of the crisis to some $10 billion. The workout has given banks a chance to lend again, especially to consumers. In January, reports John Parker, Ford Motor Co.'s president of Association of Southeast Asian Nations (ASEAN) operations, Thais bought 24,727 cars, 45% more than they purchased a year before. Homes are selling briskly, too. Land & Houses Co., Thailand's largest homebuilder, reckons it will sell 20% more new homes this year. At the same time, Thais are gorging on credit-card debt. David Hendrix, the Thai Farmers Bank executive in charge of retail banking, says spending per card grew 25% last year, to $200 per month.

One factor that may increasingly drive the region's uptick is the willingness of some leaders to swallow the pill of reform. In Thailand, the previous government lifted restrictions on foreign investment in retail, helping spur a shakeout and giving consumers an incentive to shop. Singapore has thrown open its telecom market and moved to liberalize its cossetted banks. It also has started to restructure state-controlled companies in an effort to make them more competitive.

Especially surprising is the resolve being shown in Malaysia, where Prime Minister Mahathir Mohamad has begun sacrificing businessmen who only recently could expect unconditional state support. Since mid-2001, the government has taken the helm at debt-ridden conglomerate Renong and Malaysia Airlines--both formerly controlled by well-connected businessmen--and has begun restructuring them aggressively. And while the bad debt overhang remains, much-needed bank mergers are moving ahead. "Rightly or wrongly, people have always associated Malaysia with crony capitalism," says Catherine Vlasto, who runs Genesis Investment Management Ltd.'s $40 million London-listed Malaysia Maju Fund. "I think that period is firmly behind it, and the outlook is bright."

Putting a damper on all the bright news, of course, is Japan, the regional laggard. The Japanese economy is expected to contract 1.3% in the fiscal year ending Mar. 31. Ominously, capital investment continues to shrink. Private-sector machinery orders in January fell a surprising 15.6%--the worst performance in more than a year--auguring continued economic weakness. Barclays Capital Japan economist Mamoru Yamazaki expects the economy to shrink 0.6% during the coming fiscal year. Still, even though Japan as a whole may not benefit from a U.S. recovery, some companies will get a lift, especially ones like Matsushita Electric Industrial Co. (Panasonic) and Sharp that have moved a lot of production to China and Southeast Asia.

All of which means that China will continue to be the regional powerhouse, sucking away foreign investment from capital-starved Southeast Asia. Exports from China, meanwhile, have jumped 14% so far this year. It's not as though China is getting all the action, though. Singapore won a big vote of confidence in January, when Advanced Micro Devices Inc. of Sunnyvale, Calif., and Taiwan's United Microelectronics Corp. announced a multibillion-dollar 12-inch wafer plant for the island state. This is on top of UMC's $3.6 billion joint venture with Germany's Infineon Technologies, scheduled to open in 2005. Singapore's cluster of suppliers and top-notch infrastructure helped it snag the investments. "For leading-edge technologies, we feel Singapore is a better place than China," says UMC investor relations head Liu Chitung.

There is another, beneficial side to China's increasing dominance: "Competition from China is invigorating a process of lowering trade barriers in the rest of Asia," says Don Hanna, chief Asia economist for Salomon Smith Barney. In fact, CSFB's Basu predicts that intra-Asian trade will grow 10% to 15% this year. Fully 60% of exports from Malaysia, Singapore, and Indonesia go to the rest of Asia. For example, a disk drive made by China's Legend Computer Inc. contains parts made in Malaysia and Singapore that are assembled in Thailand. At the same time, China will become a key market for everything from Thai rice to Korean mobile phones.

The recovery in the U.S. will have to last if Asia is to bounce back strongly. Companies in much of the region are not yet hiring. And foreign direct investment has yet to recover the levels of the mid-1990s. Growth in the region will continue to be uneven. And there's plenty that can go wrong. With a revived U.S. economy and a steadily growing China, however, Asian companies that have retooled at least have a fighting chance
.      - By Frederik Balfour and Mark L. Clifford in Hong Kong, and Moon Ihlwan in Seoul, with bureau reports    Business Week    25 March 2002

Asia leading way in making power systems efficient

(SEOUL) Japan, South Korea and China are investing about US$9 billion this year in infrastructure and information technology to make electricity networks more efficient, creating lucrative opportunities for niche technology and equipment providers.

The 'smart grid' system, through computerised monitoring of electricity flowing through a power grid, allows utilities to automatically manage electricity usage in a way that is more reliable and flexible.

Asia's spending on smart grids is expected to outpace the United States, with China alone seen investing US$7.3 billion in the sector this year, according to Zpryme, a market research firm based in Austin, Texas.

'China is pursuing smart grid as aggressively or more aggressively than any other country in the world right now,'said Brad Gammons, vice-president of IBM's Global Energy & Utilities Industry, told Reuters in an interview.

'They're very focused and have a very strong commitment to move in that direction,' he said.

IBM along with companies such as Cisco and Microsoft are investing in the smart grid market in China.

The focus on smart grids will benefit businesses in the whole power distribution system, from makers of pole transformers to electricity meters and software providers to storage battery manufacturers.

Analysts said that government spending will go a long way to driving regional demand for smart grid equipment and technology, helping create bigger businesses in the sector.

China alone could spend over US$100 billion upgrading its power distribution over the next 10 years, said Yuanta Securities analyst Min Li.

Japan and South Korea, which are a step ahead of China in the building of intelligent power distribution networks, are also ramping up smart grid investment. Both are ear-marking spending of more than US$800 million this year, according to a Zpryme report released in January.

South Korea aims to spend 27.5 trillion won (S$33 billion) by 2030 on smart grids to help meet its emissions reduction target, and is building the world's largest smart grid test-bed in Jeju island, in the south of the country.

As future distribution networks could eventually go wireless, the upgrade of Asia's power distribution network also could benefit mobile operators such as SK Telecom.

'Smart grid itself is a combination of electricity equipment and IT infrastructure,' said analyst with Kim Min Ho at E*Trade Securities. 'As it is highly possible that metering will be made through wireless communication, there will be increasing demand to borrow wireless networks.'

Analysts see challenges ahead.

Incentives that would further bolster private investment are lacking in Asian markets, while the United States and Europe are making separate moves to shape the standards for smart grid deployment worldwide.

'If the United States or Europe move first to set up global standards, Asian firms will have to spend a lot to develop technologies and systems to meet those standards,' said Kim Ik Sang, analyst at Hi Investment & Securities.

'It is important for Asian companies to work with their US and European counterparts and participate this early in the development of these standards,' he said. -- 2010 March 9 Reuters

 

 


Copyright ©  2011
By opening this page you accept our
Privacy and Terms & Conditions