Wednesday, November 14, 2007

Asia still prone to financial crisis, say economists

TheStar

KUALA LUMPUR: Asian economies are still prone to a financial crisis amidst the prevailing concern over the US economy, economists say.

According to Fortis Bank Singapore senior strategist Joseph Tan, “the face of the crisis has changed.”

“We're unlikely to see the same crisis as in 1997 but the world is inter-connected,” he said during the 12th Malaysian Capital Market Summit 2007 organised by Asian Strategy & Leadership Institute yesterday.

Malaysian Economic Association president Datuk Dr Gan Khuan Poh concurred, adding that the subprime crisis in the US was no longer a nation's issue but had become contagion to the rest of the world.

“After the crisis, Asian nations decided to grow slowly, borrow less, invest less, keep current account surpluses, keep exchange rates competitive and build up foreign exchange reserves,” he said, adding, however, that this had caused a “substitution effect.”

“As a result, the economy does not generate sufficient growth to improve the standards of living,” he added.

Moreover, there is no international regulatory or surveillance framework to monitor the global hedge funds, which are usually involved in speculative trading.

“There are about 9,500 hedge funds in the world with huge amounts of money, which they are trying to squeeze more value out of,” Gan noted.

AmBank Group economic adviser Mustafa Mohd Nor said it was important to monitor the trend of the US dollar as erratic fluctuation amid rising oil prices would cripple the world's biggest economy.

The weakening of the US dollar would also result in the strengthening of other currencies. The appreciation, however, was not supported by fundamental economic growth, he said.

Tan said the contagion effect of the US subprime crisis to Asia, however, had been minimal.
“Asia has been fairly lucky this time as the banks were not heavily involved in leveraged buyout due to lack of maturity in managing that kind of risks,” he said.

Additionally, demand from China was on the increase and the commodity play remained strong. Hence, the dependence on the US economy was slowly diminishing, Tan added.

Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.