Asia May Take A Hit In 'Act Two' Of Sub-Prime Crisis

Source : The Straits Times, Nov 30, 2007

Stanchart S-E Asia chief says turmoil will hit export-driven regional economies

A TOP banker just posted to Singapore has warned that 'it's only the end of the beginning' of the global credit crisis.

The world is still reeling from US$50 billion (S$72.3 billion) in losses linked to sub-prime home loans in the United States, Standard Chartered's (Stanchart's) new chief executive (CEO) for South-east Asia, Mr Ray Ferguson, said.

Asian economies, particularly Singapore and Hong Kong, are likely to be hit by the deepening crisis, he said at a luncheon hosted by the British Chamber of Commerce's Professional Services Business Group.

Some analysts believe, on the other hand, that the sub-prime fallout will be limited in Asia. Last week, Henderson Global Investors' director of economics and asset allocation, Mr Tony Dolphin, said while the short- term outlook appears shaky, the Asian stock-market bull run would continue next year.

Several weeks ago, Senior Minister Goh Chok Tong also said Asia had emerged relatively unscathed from the crisis.

Mr Ferguson likened the crisis to a three-act play: 'Act One has just ended, and the level of losses we have seen will look small compared to Act Two.'

He highlighted some analysts' estimates that write-downs for sub-prime loans might eventually hit US$400 billion. He cited US reports suggesting 1.5 million to two million Americans could lose their homes next year.

All this is expected to undermine US consumer and investor confidence and take a toll on export-driven Asian economies still 'very dependent' on US consumption.

Mr Ferguson, who served as Stanchart's US country CEO, rejected an emerging view that Asia's growth has been decoupled from the US.

'Asia will be affected... While the direct exposure of banks in the region to sub-prime loans is relatively limited, Asian debt markets have slowed and credit criteria have been tightened.'

Oil price hikes and a weaker US dollar are set to dent US consumer confidence, so Asia will 'feel the force of a decline in the US economy'.

'Singapore and Hong Kong, being small and export-dependent, will feel far more impact', than other markets, such as India and China.

Still, 'the feel-good factor in Raffles Place is not just based on the US', he said. Singapore's strategy of diversifying its economy away from electronics exports to the financial, biomedical and other sectors will help it to weather market volatility.

'Act One has just ended, and the level of losses we have seen will look small compared to Act Two.'

MR FERGUSON, who likens the crisis to a three-act play