Investment growth in Asia marches through US recession concerns

Asia will continue to attract strong investments this year despite the uncertain global economic outlook, according to some participants at the 9th Annual Investment Management Association Singapore Conference on Tuesday.

They expect investment vehicles such as venture funds and private equity to pick up in 2008.

Asia has seen a sharp change – from a positive global economic outlook in 2007 to one of uncertainty this year.

Amid the market volatility, clouds are hanging over the direction of Asian financial markets. But some say Asia may be able to ride out the US storm if it is short-lived.

Heng Swee Keat, Managing Director of the Monetary Authority of Singapore, said: “At this point there is a risk of being caught in a negative spiral. Tightening credit standards and reduced credit availability will be mutually reinforced with the slowing of the macro economy.

“The extent to which the spiral takes hold determines the extent of the US slowdown. What we are likely to see, however, is the weak synchronisation of business cycles. The underlying momentum in the Asian economies will allow Asia to ride out the slowdown in the US if it is mild and short-lived.”

The Asian economy, excluding Japan, is still forecast to grow at around 7.8% in 2008. The region is seen as an attractive destination for investments.

Asian markets are still seen as an attractive investment destination, with foreign inflows of direct investment into East Asia more than doubling to US$200 billion over four years – from US$84 billion in 2002 to nearly US$200 billion in 2006.

Kirk West, Managing Director of Principal Global Investors said: “The longer term opportunities exist in the Asian corporates. They have been impacted by what has happened to the corporates in the US but there are some significant differences.

“The balance sheets of a lot of Asian corporates are very strong. They’ve got fully funded CAPEX programmes and from a operational perspective, a lot look very strong.

“So at the moment, they are being impacted by sentiment and that may well continue for the short to medium term. But longer term, I think some of these corporates with stronger balance sheet, good cash flows and fully funded CAPEX position will be very attractive investments.”

Within Asia itself, investment choices are also changing because of the rapidly ageing population. There is growing interest in products such as retirement planning and healthcare financing. By 2050, Asia’s population above 60 years old is expected to quadruple to 1.2 billion people.

Wealth is also being transferred to the next generation – leading to a younger group of investors.

“I believe that 2008 is going to be a very challenging year for investors and for Asia… We are going to start seeing the generational transfer of wealth, which means we are going to see a younger and more sophisticated group of owners of wealth. They will drive investment decisions slightly differently from their parent,” said Yeong Phick Fui, Managing Director of UBS Wealth Management.

Industry experts say investment vehicles such as venture funds, private equity, real estate and commodities are expected to pick up in the next year. – CNA /ls

Source : Channel NewsAsia – 19 Feb 2008

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