More interest rate hikes expected amid asset bubble concerns: DBS CEO

DBS CEO Piyush Gupta said property bubbles are forming in some key Asian cities which may lead to a market correction.

He also said concerns over asset bubbles may lead to more Asian governments raising interest rates soon.

Mr Gupta was speaking at an event organised by the American Chamber of Commerce in Singapore on Monday.

Property prices have been rising across Asia. In Hong Kong, property prices have, in fact, returned to the peaks seen before last year’s crisis and DBS believes there are asset bubbles, particularly in Singapore, Hong Kong and Shanghai.

It sees a correction looming but doesn’t think there will be a crash.

Piyush Gupta, CEO, DBS, said: “You can’t time the correction because of the capital flows coming in from the west. Essentially at this stage, everything is liquidity-driven and there’s a large amount of liquidity which is keeping all asset prices propped up.

“If there’s something which pulls some of the liquidity out, you’ll start seeing a correction. By and large, look at the corrections in the past, it won’t be different from those. So whether you’re off 10 per cent to 15 per cent and then correct and go back up, is the type of correction that you’ll see. I don’t think you’ll see them falling off 30 to 40 per cent.”

Still, with governments having implemented property market cooling measures, or in the process of doing so, DBS expects interest rates to head up soon – between 100 and 125 basis points on average by the end of the year.

The CEO added: “In all cases, the central banks are trying to be focused on measures like loan-to-value ratios, tightening of the margins to make sure they stay ahead of the curve. That’s one of the reasons why we think rates will go up this year.

“Malaysians have raised, Indians have raised and I think you’ll start to see China and Korea in the next few weeks. And then around the region you’ll start to see a bias for tightening and I think you’ll see more tightening than people expect.”

Mr Gupta also noted some investment risks in the region. He said the current political unrest in Thailand is likely to hurt the country’s economic prospects. He was referring to the clashes between Red Shirt protestors and Thai troops in Bangkok over the weekend which left over 20 people dead.

Mr Gupta said: “Till a week ago, we were very bullish on Thailand. We thought that the current administration was doing a good job and that most of the market was calling Thailand on the downside. We frankly thought Thailand would surprise on the upside.

“Obviously after the weekend, bets are off. What happened over the weekend, with the loss of lives and people injured is very unusual. This is not Thailand. I’m beginning to worry that this whole urban-rural divide is actually going to put a little bit of crimp on Thailand’s prospects.”

Mr Gupta sees Indonesia as a market with huge potential for DBS’ business. But he said DBS had not held any talks to acquire Indonesia’s Bank Danamon from its shareholder Temasek Holdings.

There has been market speculation that Temasek will sell its 68 per cent stake in Bank Danamon to DBS.

As for Singapore, Mr Gupta said he expects steady earnings for lenders in the second half of this year. He sees loan demand holding up heading into the second half.

Source : Channel NewsAsia – 12 Apr 2010

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