Asset bubbles not a risk yet for Asia: OCBC
Bank economist also does not expect a W-shape recovery
By OH BOON PING
ASSET bubbles will not be a problem in Asia until 2010 and beyond, even though policymakers appear well aware of the risks of excess liquidity in the system, say OCBC analysts.
At a briefing yesterday, economist Selena Ling explained that Asian markets are still early in the recovery cycle, and that attempts to address an overheated market should come much later.
However, she says, the days of 'easy money' under the Greenspan era are definitely over, and the central banks in the region are cognizant of the asset bubble risks. This can be seen from the rate hikes in Australia, while the others keep a close watch on the situation.
Yesterday, Ms Ling also downplayed the likelihood of a W-shape recovery, citing factors such as the cycle of upgrades to GDP growth, corporate earnings forecasts and ratings which are expected to continue into the first half of 2010.
'So, while growth may tail off in the second half of 2010, we don't expect a sharp correction to the same magnitude from Q4 last year to Q1 this year,' she said.
Turning to foreign exchange, OCBC thinks that the immediate outlook for the US dollar continues to be negative, as the economic recovery story plays out in the near-term, says FX strategist Emmanuel Ng.
Pointing to the Baltic Dry Index, which moves inversely with the US dollar and the production numbers in the OECD, Mr Ng explained that both indicators have posted sharp rebounds - an indication of higher economic activity.
Moreover, the forex markets are poised to see higher volatility if global exit strategies are not synchronised.
Under such situations, there could be a shake-up in the markets that will see the US dollar briefly 'gaining traction against the majors'.
As for Asian currencies, OCBC said that broad dollar direction coupled with equity market performance will continue to provide underlying impetus for those units.
In particular, the pick-up in the foreign purchases of Asian currencies is expected to be sustained going into the new year.
As for ratings on local stocks, OCBC is 'overweight' on telecommunications, oil & gas, commodities and infrastructure.
Top picks include the three telcos, Noble, Ezra, Wilmar, Midas and Tat Hong, said investment research head Carmen Lee.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Stock watch: Asian markets are still early in the recovery cycle, and attempts to address an overheated market should come much later, says OCBC economist Selena Ling
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