BT : Bubbles in Asia, but severe crash unlikely: DBS CEO

Business Times - 13 Apr 2010

Bubbles in Asia, but severe crash unlikely: DBS CEO

By CONRAD TAN

(SINGAPORE) Asset bubbles have already formed in Singapore, Hong Kong and mainland China, but any correction in prices should be manageable and won't precipitate a severe crash that derails Asia's economic recovery, DBS Group chief executive Piyush Gupta said yesterday.

'There are asset bubbles in Asia. That's true of Singapore property, of Hong Kong property, of Shanghai property - there's no question,' Mr Gupta said at the annual general meeting of the American Chamber of Commerce in Singapore, where he was the keynote speaker.

'But the nature of the bubble is not very different from previous cyclical bubbles we've seen around Asia. So I think there will be a correction - markets will level off - but I don't think we'll see a crash which brings everything back down on its knees.'

Asian central banks are likely to tighten monetary policy by raising borrowing costs more quickly than expected this year, partly in response to the asset bubbles, he told reporters afterwards.

'Most Asian central banks might be a little bit behind the curve on raising rates, but I think we'll start seeing that pretty quickly. I think you'll see more tightening this year than people expect.'

On average, DBS analysts expect interest rates across most of Asia to rise by 1-1.25 percentage points by the end of this year, he said.

But he stopped short of criticising governments and central banks for not acting sooner to cool the property market in Singapore and elsewhere in Asia.

'In hindsight it's easy to say that we could have done more. Given where the economies are coming from, being prudent about withdrawing monetary easing and stimulus was the right thing, but I think now is when you might want to see a faster pace of tightening.'

Here, analysts are split over whether the Monetary Authority of Singapore (MAS) will shift its neutral stance on the Singapore dollar in its monetary policy statement tomorrow by nudging the currency higher, or keep it unchanged.

But many economists believe that Singapore's economic output surged in the first quarter - by as much as 14 per cent - compared to the same period last year, making it likely that MAS will tighten monetary policy later this year, if not this week, to cool inflationary pressures stemming from the rapid growth.

'Asia, in particular, has rebounded in a convincing manner,' Mr Gupta said, citing anecdotal evidence from DBS's operations across the region.

Credit-card spending is rising for various goods and services, including luxury items - signalling genuine optimism among consumers in Asia, he said. 'This is not about people who've been able to get some money from a government voucher programme and are going out to buy groceries. People have confidence that things are good around here.'

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Mr Gupta: Rate hikes in Asia will come sooner than expected this year