Tharman Upbeat On Asia's Economic Growth

Sources : The Straits Times, Sep 11, 2007

THE fallout in Asia from the United States sub-prime mortgage crisis has so far been limited, said Second Minister for Finance Tharman Shanmugaratnam, who is bullish on Asia's economic growth prospects.

In July and last month, global stock markets were battered amid rising defaults by US sub-prime borrowers - those with low income or a bad credit history. This led to a wider credit crunch.

Mr Tharman, who is also Education Minister, said: 'Asian markets have been volatile, but the MSCI Asia ex-Japan is down only 1.6 per cent since mid-July, when the sub-prime problem erupted and is still up 24 per cent for the year.'

This is an index measure for the overall performance of Asian bourses.

'Bank lending too...has not been tightened significantly,' he said yesterday, at the opening of French bank SG Private Banking's office at One Raffles Quay.

He noted that while the current credit crisis adds some short-term uncertainty, it does not 'alter the picture of an increasingly dynamic and resilient Asia in the coming years and decades'.

'The reasons for the increased volatility in Asian markets appear to have little to do with the exposure of Asian institutions to the sub-prime problem. Asian banks and investors are generally believed to have limited exposure to US sub-prime...as liquidity dries up elsewhere, investors have in many instances sold Asian assets to raise cash.'

Despite the recent market volatility, he was bullish about Asia's medium-term prospects, especially for the growth of the private banking sector in Singapore.

He noted that the Republic's financial markets are gaining more breadth and depth.

For example, Singapore is playing a lead role in the trading of over-the-counter (OTC) commodity derivatives in Asia - particularly in energy and increasingly in metals.

Last year, about US$600 billion (S$915.3 billion) of OTC trades were done out of Singapore, accounting for 8 per cent of global volume.

The Singapore Exchange has also seen strong growth, with a market capitalisation of more than $720 billion, up 69 per cent from 2005.

However, Mr Tharman also warned that the repricing of risk in financial markets is 'probably not over', adding that 'economic forecasts for the US economy are being scaled down, compared to expectations just two months ago'.

'It's too early to say what the economic impact on Asia will be. Should the US economy slow down sharply, Asia will certainly feel the drag.'