BusinessTimes
ASIAN economies are in store for a "bleak time" in the next 18 months as surging inflation erodes corporate earnings, Aberdeen Asset Management Asia Ltd said.
"The majority of companies are facing rising costs: rising property costs, rising wage costs, rising raw material or energy costs," said Aberdeen's Hugh Young, who helps manage US$47.8 billion in Asia from Singapore. "So margins are facing quite a squeeze this year."
Economies across the region are under threat as spiraling food and energy bills sap household and business budgets, and stoke inflation. China last week joined India, Malaysia, Indonesia and Pakistan in increasing fuel prices and reducing subsidies, touching US$139.89 a barrel on June 16.
"Our fear is this year you'll be seeing more and more of the term that we started to use at the beginning of the year, which is 'stagflation'," Young told reporters in Hong Kong.
"We're going to go through a period of far slower growth in Asia with a combination of far higher inflation."
Aberdeen forecasts "a tough year" for earnings growth in Asia, which will decline to about 7 per cent to 8 per cent, compared with an average of about 14 per cent in the past five to six years, Young said.
"Earnings will be coming down as the year progresses, rather than going up,'' he said. Inflation "is one of the major reasons that we're fairly cautious in our earnings estimates."
China Mobile Ltd and PetroChina Co have fallen out of Aberdeen's top 10 regional holdings, according to Young.
Stock Declines
China Mobile's 105 per cent jump in 2007 made it the fifth-biggest percentage gainer on Hong Kong's benchmark Hang Seng Index. The world's largest mobile-phone operator by users, has retreated 22 per cent this year. PetroChina, the nation's largest oil producer, has lost 26 per cent this year.
"We were progressively top-slicing them," Young said. "Now, looking back, we are rather comfortable that we did take money out of China as prices soared."
The MSCI China Index has slumped 26 per cent this year on concerns the government will step up measures to curb consumer prices. The nation's inflation climbed to 8.1 per cent in the first five months of 2008 from 4.8 per cent for all of 2007.
To counter rising prices, the central bank has required lenders to set aside a record amount of money for reserves this year after raising interest rates six times in 2007.
Some companies stand to benefit, such as Rio Tinto Group, the world's second-biggest iron-ore exporter. Rio is the "purest beneficiary" from rising inflation, he added.
China yesterday agreed to pay Rio at least 80 per cent more for iron-ore supplies. - Bloomberg
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