Private credit might be less attractive than it was last year as investors rush into the market, but there are sweet spots to be found.
ôAsia is joining the rest of the world in facing tremendous inflation problems,ö says Tao, who notes that inflation will persist in the region even if oil prices stabilise. After all, food is a major driver of inflation in Asia, especially in the southeast.
Tao doesnÆt expect Asian central banks to significantly tighten monetary policy to help curb consumer prices because they are too worried about the impact of high interest rate on exports. ôThey will likely take a wait-and-see attitude,ö he says.
Amid this backdrop for the region, Tao expects the growth risks in China to be moderate. Credit Suisse has raised its GDP growth forecast for non-Japan Asia to 7.9% from 7.7% for 2008, largely due to an upward revision in China. It revised its 2008 forecast for China to 10.1% from 9.7%, reflecting better net trade.
Economic growth in China has been better than the market may have expected, Tao says, and GDP growth momentum will be sustained in spite of the credit crisis, high oil prices and the recent natural disaster.
Tao also believes food price inflation should decline on a yearly basis over the next two quarters in the mainland, thanks to a rising statistical base and better supply, but remains cautious on the inflation outlook for next year. With headline inflation softening, growth risk moderating, he expects a period of relatively tolerant economic policies in China, which he calls ôthe Olympics honeymoonö.
Although the impact of rising oil prices on the Chinese economy remains relatively small, Tao notes that the risk to growth posed by energy costs is increasing. China fixes domestic gasoline and diesel prices at around 40% below the international benchmark, which has protected consumers but caused losses for refineries, even in spite of the subsidies and tax rebates offered on an ad hoc basis.
In Hong Kong, Tao expects that crude oil prices will exert greater pressure on inflation. Credit Suisse has revised its 2008 CPI forecast for Hong Kong to 5.7% from 4.9%. With the lowest unemployment rate in 10 years, soaring nominal wages are also fuelling inflation. However, Credit Suisse has also increased its 2008 GDP growth forecast for Hong Kong to 4.4% from 3.9% because of stronger than expected trade and consumption momentum.
In India, Credit SuisseÆs economists expect that crude oil prices will drive higher inflation and slow down GDP growth. Oil at current or higher prices will also widen trade deficits and create a heavier fiscal burden for the government, they argue. In the context of current price pressures, Credit Suisse has revised its average FY2008/09 wholesale price index (WPI) inflation forecast to 7.2% from 4.4%. Credit Suisse economists also expect the Reserve Bank of India to continue its monetary tightening, amid rising inflation pressure, creating a negative impact on credit growth and consumption demand.
Insto roundup: FWD files for ADR listing in New York; Nippon Wealth Life fully acquired by parent firm
Intrust Super chief executive to step down after merger; Aware acquires site for essential worker affordable housing; China bans cryptocurrency-related business activities; Hong Kong insure FWD filed for US listing of ADRs; Nippon Life acquires wealth life insurance from MassMutual; NPS to hire five investment managers to diversify portfolio; Malaysia to review Spacs framework; EPF reports $8 billion investment income; and more
Hesitancy aside, institutional investors eye Australia and Japan as promising geographies for private debt investments within Asia Pacific, with Greater China and Korea on the periphery.
While Asia still lags the global average, interest in sustainable projects is growing fast; the only thing needed now is the expertise to drive growth
Regulators keep their eyes open on tightening insurance industry by introducing more detailed risk management requirements, which could bring pressure on smaller players.