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Saturday 8 February 2014

There’s no place like Penang, said Briton

Briton lured by multiracial culture to settle down in the Pearl of the Orient

Home sweet home: Makins, in his Scottish kilt, posing for a photograph with several hikers during a recent hiking trip up the Moon Gate Point Five trail in the Penang Municipal Park.

BRITON Jonathan Makins has travelled far and wide and lived in various places around the world but Penang has a special place in his heart.

Makins, 59, born in Italy to a Scottish father and an English mother, has been living in Penang since February 2012.

He hopes to continue staying in George Town, which he now calls home.

Currently enrolled under the ‘Malaysia, My Second Home’ programme, Makins has lived and worked in Africa, London and Sweden.

The avid traveller, who considers himself a global citizen, also spent four years in Bangkok before coming to Penang.

“I wanted to stay in an Asian country as I love the climate here, which is better than in Europe,” he said.

“Besides, my Thai visa was coming to an end and I was also not very happy in Thailand.

“I visited Penang about four times before settling here, and I find that it is the right place for me.

“I visited Kuching, Sarawak, once but it is very quiet, while travelling to other areas there takes long hours. I have also been to Kuala Lumpur a few times but it was too noisy and dusty,” he said.

After he was born, Makins’ parents briefly brought him back to England before taking him to Tanzania when he was two.

“After Tanzania, I was raised in Nairobi, the capital of Kenya, when I was about six, before I left for school in England at the age of 10, while my parents remained in Kenya.

“After university, I worked as a civil and structural engineer in South Africa and Botswana for about nine years before becoming a cabinetmaker in London, England, for seven years,” he said.

Makins then went on to become an English teacher in Sweden for nine years before settling down in Thailand, where he spent the following four years.

“Having been to so many places, I consider myself a citizen of the world.

“As of now, I hope to continue staying in Penang. I love how it is so multiracial and everyone has friends of different races, religion and beliefs,” he said, adding that among his favourite delicacies were Indian vegetarian meals and simple home-cooked Chinese dishes.

Makins, who lives on his own at a condominium unit in Tanjung Bungah here, said besides the unique culture and heritage, he also found it easier ‘to make friends’ with the locals in Penang.

“The people here are friendlier and more hospitable when compared to some in other places that I have been to,” he added.

To keep fit, Makins goes hiking at the Moon Gate Point Five trail in the Penang Municipal Park at least twice a week, and recently he drew curious stares from hikers when he went there dressed in a Scottish kilt on Christmas Day.

“I also swim and keep in touch with friends through the Internet during my free time. Music is my main companion.

“I play the flute and am teaching myself the piano,” he said.

Makins, who was born in the Year of the Horse, added that he travelled to Bedong, Kedah, for the Chinese New Year celebrations with some friends.

By  Cavina Lim The Star/Asia News Network

Friday 7 February 2014

Get an Islamic syariah home loans with discount on stamp duties

Boost for syariah home loans, Govt gives 20% stamp duties discount 

KUALA LUMPUR: Islamic home loans in Malaysia may beat last year’s record in 2014, as the Government provides tax incentives to get more people to use syariah-compliant borrowing, according to CIMB Group Holdings Bhd.

Mortgages that comply with the ban on interest climbed 30% in 2013 to an unprecedented RM61.9bil (US$18.7bil), Bank Negara data showed. Conventional home financing grew 10% to RM271bil, the same pace as 2012, even after the Government introduced property curbs to rein in speculation.

The Government is giving a 20% discount on stamp duties for mortgages that comply with religious tenets as it seeks to boost Islamic banking assets to 40% of the total by 2020 from 24%. The Government started holding monthly roadshows last year to create greater awareness of such financing principles, as it strives to enhance the nation’s status as a global syariah hub.

“There’s still strong potential for Islamic financing,” Badlisyah Abdul Ghani, chief executive officer (CEO) at CIMB Islamic Bank Bhd, a unit of CIMB Group, said in a phone interview in Kuala Lumpur on Wednesday. “The roadshows and the incentives are helping syariah mortgage growth.”

Malaysia is also trying to boost such mortgages by offering to waive stamp duties for the refinancing of existing home loans that don’t conform to syariah principles. Syariah-compliant property borrowings had risen an average 31% per annum over the past five years to account for 19% of the total RM333bil market in 2013, central bank data showed.

Syariah home loans differ from their conventional counterparts in that a bank typically buys the property on behalf of the customer and rents it back at a mark-up to avoid interest payments. Some of the more popular options include contracts such as Ijarah, Murabaha and Tawarruq.

The central bank cut the maximum duration on all mortgages to 35 years from 45 years in July to rein in household debt, which had risen an average 12% per annum since 2008. In October, the Government increased property gains taxes and imposed curbs on foreign ownership.

The nation’s Islamic banking assets had more than doubled to RM543bil in the past five years, according to October figures issued by the Treasury. Sales of syariah-compliant bonds, or sukuk, rose 69% in 2014 from the year-earlier period to RM5.9bil, data compiled by Bloomberg showed. Issuance totalled RM49bil last year after reaching a record RM95.8bil in 2012.

The Bloomberg-Aibim Bursa Malaysia Corporate Sukuk Index of ringgit-denominated debt fell 0.9% this year to 104.155 as of Feb 4, almost erasing last quarter’s 1.1% gain.

“Islamic mortgages complement conventional ones,” Syed Abdull Aziz Jailani Syed Kechik, CEO at OCBC Al-Amin Bank Bhd, the Islamic unit of Oversea-Chinese Banking Corp, said in a Feb 4 e-mail interview. “One of the draws can be said to be the efforts by the Government and central bank to boost the market through incentives related to taxes.”

Last year’s curbs failed to prevent Malaysia’s House Price Index from climbing 1.4% to a record 194 in the three months ended September, the 19th straight quarterly advance, according to data from the Finance Ministry.

Mortgage demand might also pick up this year, particularly in the first half, as property investors sought to guard against a potential acceleration in inflation, CIMB’s Badlisyah said.

Consumer prices climbed 3.2% in December from a year earlier, the biggest gain since November 2011, an official report showed on Jan 22. Costs may increase further after Tenaga Nasional Bhd raised electricity tariffs on Jan 1.

“The products that have been put out in the market have been very well-received both by Muslims and non-Muslims,” Baiza Bain, managing director at Amanie Advisors Sdn Bhd, a Kuala Lumpur-based Islamic finance consultancy, said in a phone interview on Wednesday. “Islamic finance is still very nascent compared to conventional finance. It definitely needs incentives to push the assets toward the right level.”

- Bloomberg

Related posts:
1.Challenging times for central banks all over the world to rejuvenate global economy
2. Asian central banks fix the mess created by their governments 
3.US Fed tapering of bond purchases, a new economic boom or bust cycles?
4.Southeast Asia's Boom Is a Bubble-Driven Illusion?

Thursday 6 February 2014

Southeast Asia's Boom Is a Bubble-Driven Illusion?



Since the Global Financial Crisis, Southeast Asia has been one of the world’s few bright spots for economic growth and investment returns. With its relatively young population of 600 million and its growing middle class, Southeast Asia has been the scene of a modern-day gold rush as international companies clamor to get a piece of the action. Unfortunately, my research has found that much of this region’s growth in recent years has been driven by ballooning credit and asset bubbles – a pattern that is also occurring in numerous emerging economies across the globe.

In the past few months, I have published reports about the growing bubbles in Singapore, Malaysia, Thailand, the Philippines, and Indonesia, and I will use this report to explain the region’s economic bubble as a whole. My five Southeast Asian country reports have generated quite a bit of interest and controversy, and were read nearly 1.3 million times, and were publicly denied by the central banks of Singapore, Malaysia, and the Philippines.

Ultra-low interest rates in the U.S., Europe, and Japan, combined with the U.S. Federal Reserve’s $3 trillion-and-counting quantitative easing programs caused a $4 trillion torrent of speculative “hot money” to flow into emerging market investments from 2009 to 2013. A global carry trade arose in which investors borrowed significant sums of capital at low interest rates from the U.S. and Japan for the purpose of purchasing higher-yielding emerging market investments and earning the difference. The surging foreign demand for emerging market investments created bubbles in those assets, especially in bonds. The emerging markets bond bubble resulted in record low borrowing costs for developing nations’ governments and corporations, and helped to inflate dangerous credit and property bubbles across the emerging world.

The flow of hot money into Southeast Asia after the financial crisis caused the region’s currencies to rise strongly against the U.S. dollar, such as the Singapore dollar’s 22 percent increase, the Philippine peso and Malaysian ringgit’s 25 percent increase, the Thai baht and Vietnamese dong’s 30 percent increase, and the Indonesian’s rupiah’s 50 percent increase, which has been subsequently negated now that foreign capital has begun to flow out of Indonesia’s economy.

The post-Crisis bond bubble helped to reduce government bond yields in Singapore, Thailand, Indonesia, Malaysia, and the Philippines (click links for charts), while foreign institutional holdings of many Asian sovereign bonds increased dramatically:

Foreign Holdings Of Malaysian Bonds

Foreign direct investment into several Southeast Asian countries - particularly Singapore, Malaysia, and Indonesia – immediately surged to new highs after the Global Financial Crisis.
Here’s the chart of Singapore’s FDI (net inflows, current dollars):

SingaporeFDI2

Malaysia’s FDI (net inflows, current dollars):

Malaysian Foreign Direct Investment

Indonesia’s FDI (net inflows, current dollars):

Indonesian FDI

How Record Low Interest Rates Are Fueling The Bubble

The emerging markets bond bubble helped to push EM corporate and government borrowing costs to all-time lows, but there is another factor that is causing the inflation of bubbles in Southeast Asia: record low bank loan rates. Large corporations have a choice to borrow from either the bond market or directly from banks, and typically choose the option that provides the lowest borrowing costs.

Western benchmark interest rates – particularly the LIBOR or London Interbank Offered Rate – are used to price bank loans in numerous countries throughout the entire world, and most have been hovering just above zero percent in the five years since the Global Financial Crisis. Most Western economies were hit extremely hard in the financial crisis and have faced a constant threat of falling into a deflationary trap since then, which is why their benchmark interest rates have been at virtually zero. In the U.S. Federal Reserve’s case, it has been running what is known as ZIRP or zero-interest rate policy.

Here is the chart of the LIBOR interest rate:

Libor

Due to the fact that the West was the primary epicenter of the 2003 to 2007 bubble economy and ensuing Global Financial Crisis, emerging market economies were able to rebound more quickly and continue growing at a much greater rate. While many Southeast Asian economies have been growing at a 5 percent or greater annual rate since 2008, they have been able to borrow at record low Western interest rates such as those based on the LIBOR. LIBOR is used as the base rate for nearly two-thirds of all large-scale corporate borrowings in Asia. Western interest rates are too low relative to Southeast Asia’s economic growth and inflation rates, so a large-scale borrowing binge has been occurring as a side-effect. Southeast Asia’s credit bubble may balloon even larger because Western benchmark interest rates are likely to stay at very low levels for several more years.

Local benchmark interest rates in many Southeast Asian countries have hit record lows since 2008 as well. Local interest rates are used for approximately one-third of large-scale corporate loans in Asia, as well as most consumer, mortgage, and smaller business loans. Southeast Asian central banks have kept their benchmark interest rates low to stem export-harming currency appreciation that has resulted from capital inflows since the financial crisis.

The chart below is Singapore’s benchmark interest rate, or SIBOR, which is commonly used as a reference rate for loans throughout Southeast Asia:

singapore-interbank-rate

Here is Malaysia’s bank lending rate chart:
malaysia-bank-lending-rate

The Philippines’ bank lending rate:
philippines-bank-lending-rate

Indonesia’s benchmark interest rate:
Indonesia's Benchmark Interest Rate
Thailand's benchmark interest rate:
thailand-interest-rate

Southeast Asia’s Boom Is Driven By A Credit Bubble

Abnormally cheap credit conditions have led to the inflation of credit bubbles across Southeast Asia, which have been a significant driver of the region’s economic growth in recent years.

Singapore’s total outstanding private sector loans have soared by 133 percent since 2010:


singapore-loans-to-private-sector

Malaysia’s private sector loans have increased by over 80 percent since 2008:
Malaysia Loans to Private Sector

The Philippines’ M3 money supply, a broad measure of total money and credit in the economy, has more than doubled since 2008, and sharply accelerated in 2013 as interest rates hit new lows:
Philippines M3 Money Supply

Indonesia’s private sector loans have risen by nearly 50 percent in the past two years:
indonesia-loans-to-private-sector

Thailand’s private sector loans have risen by over 50 percent since the start of 2010:
Thailand Loans To Private Sector

Though dangerous credit bubbles are inflating across Southeast Asia, some countries’ credit bubbles are driven primarily by consumer or household debt, while others are driven mainly by commercial sector borrowing, particularly for construction and property development. Singapore, Malaysia, and Thailand’s credit bubbles have a significant household debt component as the chart below shows:
BWNLMLjCQAAdNZ-9


Singapore’s household debt-to-GDP ratio recently hit nearly 75 percent, which is up from 55 percent in 2010 and 45 percent in 2005. Though Singapore’s total outstanding household debt has increased by 41 percent since 2010, the city-state’s household income and wages have increased by a mere 25 percent and 15 percent respectively.

Malaysia now has Southeast Asia’s highest household debt load after its household debt-to-GDP ratio hit a record 83 percent, which is up from 70 percent in 2009, and up from just 39 percent at the start of the Asian Financial Crisis in 1997. Malaysian household debt has grown by approximately 12 percent annually each year since 2008.

Thailand’s household debt-to-GDP ratio also hit a recent record of 77 percent, which is up from 55 percent in 2008, and just 45 percent a decade ago. Total lending to Thai households increased at a 17 percent annual rate from 2010 to 2012, while household credit provided by credit card, leasing and personal loan companies rose at an alarming 27 percent annual rate.

Property Bubbles Are Ballooning Across Southeast Asia 

Ultra-low interest rates in Southeast Asia have helped to inflate property bubbles throughout the region, which has also contributed to the staggering rise in household debt.

Singapore’s mortgage rates are based upon the SIBOR rate discussed earlier, which has been held at under one percent for over five years. Singapore’s property prices have roughly doubled since 2004, and are up by 60 percent since 2009 alone:

Singapore-Housing-Bubble
Source: GlobalPropertyGuide.com 

The average price of a new 1,000-square-foot condo has risen to $1 million to $1.2 million Singapore dollars ($799,000 to $965,638 U.S.), making the city-state the world’s third most expensive residential property market behind Canada and Hong Kong. A 2013 study by The Economist magazine showed that Singapore’s residential property prices are 57 percent overvalued based on its historic price-to-rent ratio. Singapore now ranks as one of the world’s ten most expensive cities to live.

Economic bubbles and the resulting false prosperity in other Asian countries have spilled over into Singapore as investors from across the region clamor to buy properties there. In 2013, 34 percent of foreign property-buyers in Singapore were from China, 32 percent were from Indonesia, and 13 percent were from Malaysia.

Total outstanding mortgages increased by 18 percent each year over the last three years, bringing total mortgage loans to 46 percent of Singapore’s GDP from 35 percent. Almost a third of Singapore’s mortgages are utilized for speculative property purchases rather than owner occupation. Singapore’s mortgage loan bubble is one of the primary reasons why the country’s household debt has been increasing at such a high rate in recent years.

Malaysian property prices have been increasing parabolically in recent years, as the chart below shows. Mortgage loans account for nearly half of all Malaysia’s household debt, and its rapid increase is the primary driver of the country’s household debt bubble.

Malaysia Property Bubble Chart


Prices have nearly doubled in the past decade in certain Philippine property markets, such as the Makati Central Business District (CBD):

Philippines Property Bubble

In the first six months of 2013, the average price of a 3-bedroom luxury condominium in Makati CBD rose by a frothy 12.92 percent (9.98 percent inflation-adjusted), after rising 5.6 percent in Q1 2013, 8 percent in Q4 and 8.3 percent in Q3 2012. The average price of a premium 3-bedroom condominium in Bonifacio Global City surged by 12.4 percent y-o-y, while secondary residential property prices in Rockwell Center rose by 10.6 percent y-o-y. Philippine outstanding mortgage loans are rising at an even faster rate than consumer credit, such as a 42 percent increase in 2012. The Philippines’ construction sector is expected to expand by double digits in 2014 and account for nearly half of economic growth thanks in large part to the country’s property development boom.

Though Indonesian property market data is spotty and difficult to source for all markets, Jakarta and Bali property prices are becoming frothy, especially at the higher end of the market. Jakarta condominium prices rose between 11 and 17 percent on average between the first half of 2012 and 2013, after rising by more than 50 percent since late 2008. Luxury real estate prices in Jakarta soared by 38 percent in 2012, while luxury properties in Bali rose by 20 percent – the strongest price increases of all global luxury housing markets.  A small two-room apartment on the outskirts of Jakarta can cost nearly $80,000 USD (RM253,373), making housing unaffordable for many ordinary Indonesians. From June 2012 to May 2013, outstanding loans for apartment purchases nearly doubled from IDR 6.56 trillion (USD $659.3 million) to IDR 11.42 trillion (USD $1.15 billion).

Thailand’s property bubble is centered primarily in the condo market, which is the most common type of dwelling for Bangkok residents, and is the speculative vehicle of choice for foreign investors who typically hail from Singapore and Hong Kong. According to Bank of Thailand, condo prices soared by 9.39 percent, while townhouses prices rose by 6.86 percent in Q1 2013, after rising by similar amounts for the past several years. The majority of new mortgages originated are concentrated at the lower end of the Thai housing market, and Bank of Thailand warned that low interest rate home loans could cause a property bubble.

Boonchai Bencharongkul, a wealthy Thai industrialist, said “I think the current situation is worrisome. As one of those who had such an experience, I can smell it now. People are rushing and competing to buy condos while more and more people are driving Ferraris. These are the same things we saw before the 1997 crisis occurred.”

Construction Bubbles Abound Across Southeast Asia

Low interest rates and soaring property prices create the perfect conditions for construction bubbles, which is what occurred in Ireland, Spain, the United States, and other countries from 2003 to 2007, and what has been occurring throughout Southeast Asia in recent years. Construction is a capital-intensive economic activity that benefits from cheap and easy credit, which is certainly the case in Southeast Asia. Southeast Asia’s construction boom has been focused on condominium and residential property development, hotels, resorts, casinos, malls, airports, infrastructure projects, and skyscrapers.

Construction has been the most significant contributor to Singapore’s economic growth since 2008, as the chart below shows:

Singapore Construction Bubble

Construction industry work permits rose to 306,500 in June 2013 from 180,000 at the end-2007, which was the peak of Singapore’s economic boom before the financial crisis hit. Singapore’s construction boom has been driving an over 18 percent annual increase in total outstanding building and construction loans in recent years. Bank loans for building and construction, and mortgages recently rose to 79 percent of Singapore’s GDP, which is up from 62 percent in 2010.

Casino and resort construction has become a strong driver of building activity ever since gambling became legal in Singapore in 2010. The Marina Bay Sands and Resorts World Sentosa opened in 2010 at a cost of over $10 billion. Singapore has also been aggressively upgrading and expanding its Changi International Airport, which has been a driver of construction activity. There is so much construction activity in Singapore that the country has 306,500 construction workers (compared to its 5.3 million population) from other Asian countries living there on work permits.

After growing by over 20 percent in 2012, Malaysia’s construction spending was expected to rise by 13 percent in 2013. Malaysia’s plan to build the tallest building in Southeast Asia, the 118-story Warisan Merdeka Tower, are a major red flag according to the Skyscraper Index, which posits that ambitious skyscraper projects are a common hallmark of economic bubbles.

In the Philippines, casinos, condominiums, and shopping malls have been driving construction activity. The Philippines now hosts 9 of the world’s 38 largest malls – beating even the U.S., China, and most other developed countries. The Philippines’ construction sector is expected to expand by double digits in 2014, and account for nearly half of the country’s economic growth.

Indonesia has been experiencing a construction boom in every sector, including hotels, condominiums, infrastructure, airports, and government buildings. At least 61 new hotels are confirmed to open in Jakarta by 2015. Indonesian construction contracts were estimated at more than $40 billion in 2013, up from $32.4 billion in 2012.

Thailand’s construction boom has been centered upon condominium development and infrastructure projects, which are funded by the government’s deficit spending. Construction spending is expected to grow by nearly 7 percent annually for the next five years.

Governments Are Borrowing To Create Economic Growth

The governments of Thailand and Malaysia have been taking advantage of low borrowing costs – courtesy of the emerging markets bond bubble – to finance deficit spending for the purpose of boosting economic growth.

Since 2010, Malaysia’s public debt-to-GDP ratio has been at all time highs of over 50 percent due to large fiscal deficits that were incurred when an aggressive stimulus package was launched to boost the country’s economy during the Global Financial Crisis. Malaysia now has the second highest public debt-to-GDP ratio among 13 emerging Asian countries according to a Bloomberg study. Malaysia’s high public debt burden led to a sovereign credit rating outlook downgrade by Fitch in July.

Malaysia Government Debt to GDP Malaysia’s Malaysia's government has been running a budget deficit since 1999:
Malaysia Government Budget Deficit

Thailand’s government spending ramped up significantly in 2012 after the launch of a $2.5 billion first car tax rebate program that was fraught with problems as well as an unsuccessful rice subsidy scheme that lost the government 136 billion baht or $4.4 billion even though it was promoted as cost-neutral. Thailand’s government also plans to spend 2 trillion baht ($64 billion) – nearly one-fifth of the country’s GDP – by 2020 on growth-driving infrastructure projects, including a network of high-speed railway lines to connect the country’s four main regions with Bangkok. The interest alone on this new debt will cost another 3 trillion baht over the next five decades.

Thailand’s government spending is up by nearly 40 percent since 2008:
Thailand Government Spending
The country’s government has been running a budget deficit since 2008 to support its spending:

Thailand Government Budget Deficit

A wealthy Thai industrialist, Boonchai Bencharongkul, warned against excessive government spending, saying “This time, the nature of the crisis might be different. Last time it was the private sector that went bankrupt, but this time we might see the government collapse.” Sawasdi Horrungruang, founder of NTS Steel Group, cautioned that Thailand’s government should not borrow beyond its ability to service its debt, which will eventually become the burden of taxpayers.

How Singapore’s Financial Sector Is Driving The Bubble

Singapore has grown to become Southeast Asia’s banking and financial center, and the region’s rise – and inflating economic bubble – in recent years has helped the city-state to earn the nickname “The Switzerland of Asia.” Singapore’s financial sector is now six times larger than its economy, with local and foreign banks holding assets worth S$2.1 trillion (US$1.7 trillion). The Singaporean financial sector’s assets under management (AUM) have increased at a 9 percent annual rate from 2007 to 2012, but surged 22 percent in 2012. The primary reason for the country’s rapid AUM growth is its growing role as a banking hub in Southeast Asia, and it has been riding the coattails of the region’s economic bubble. A full 70 percent of assets managed in Singapore were invested in Asia in 2013, which is up from 60 percent in 2012. Singapore’s financial services industry grew 163% between 2008 and 2012.

Singapore’s banks have been contributing to the inflation of Southeast Asia’s economic bubble due to their use of the abnormally-low SIBOR as a reference rate for loans made throughout the region.

Here is the chart of the SIBOR interest rate as a reminder of how low it has been for the past half-decade:

singapore-interbank-rate

To learn more about Singapore’s financial sector and its role in inflating Southeast Asia’s economic bubble, please read this section of my detailed report about Singapore’s bubble economy.

How China Is Driving Southeast Asia’s Bubble

Economic bubbles are not confined to Southeast Asia, unfortunately; since 2008, China’s economy has devolved into a massive economic bubble that has been contributing to Southeast Asia’s bubble.
Here are a few statistics that show how large China’s bubble has become:
  • China’s total domestic credit more than doubled to $23 trillion from $9 trillion in 2008, which is equivalent to adding the entire U.S. commercial banking sector.
  • Borrowing has risen as a share of China’s national income to more than 200 percent, from 135 percent in 2008.
  • China’s credit growth rate is now faster than Japan’s before its 1990 bust and America’s before 2008, with half of that growth in the shadow-banking sector.
As mentioned at the beginning of this report, China’s government has encouraged the construction of countless cities and infrastructure projects to generate economic growth. Many of China’s cities, malls, and other buildings are still completely empty and unused even years after their completion, as these eerie, must-see satellite images show.

China has a classic property bubble that has resulted in soaring property prices in the past several years. A recent report showed that property prices increased 20 percent in Guangzhou and Shenzhen from a year earlier, and jumped 18 percent in Shanghai and 16 percent in Beijing.

China’s inflating economic bubble has generated an incredible amount wealth (albeit much of it temporary), a portion of which has flowed into Southeast Asia. Wealthy Chinese have been buying condominiums in desirable locations across Southeast Asia, and its notoriously free-spending gamblers are the primary reason for the casino building boom in numerous Southeast Asian countries, particularly in Singapore and the Philippines. Chinese companies have been investing and lending heavily in Southeast Asia, with a strong focus on the natural resources sector.

From 2002 to 2012, China’s bilateral trade with Southeast Asia increased 23.6 percent annually, and China is now Southeast Asia’s largest trade partner, while Southeast Asia is China’s third-largest trade partner.

Though several lengthy books can be written about China’s rise, economic bubble, and how it affects Southeast Asia, my goal is to succinctly show how dangerous China’s economic bubble has become and emphasize the fact that Southeast Asia’s economy has been benefiting from China’s false prosperity. The eventual popping of China’s bubble will send a devastating shockwave throughout Southeast Asia’s economy, which will contribute to the ending of the region’s bubble economy.

The Role Of Southeast Asia’s Frontier Economies

This report has focused primarily on the larger, more developed Southeast Asian countries because they have a far greater influence on the region’s economy compared to the “frontier” economies of Vietnam, Cambodia, Laos, and Burma (Myanmar). The five largest Southeast Asian economies also have more advanced financial markets that are better integrated with global financial markets, and thus pose a greater systemic financial risk than the region’s frontier economies.

Southeast Asia’s frontier economies have been growing rapidly in recent years for many of the same reasons as their more developed neighbors, including:
  • Rising trade with China
  • Rising Chinese investment
  • Increasing intraregional trade
  • Loose global monetary conditions and “hot money”
  • Higher commodities prices
  • Credit and property bubbles
Vietnam experienced a property and credit bubble that popped several years ago and saddled the country’s banking system with bad loans. International realty firm CB Richard Ellis warned last year that Phnom Penh, Cambodia was experiencing a property bubble. Some local observers have suspected that property prices in Vientiane, Laos were in a bubble. Property prices in Yangon, Burma have exploded higher in recent years making commercial rents more expensive than in Manhattan.

While relevant data is few and far between, it is not unreasonable to believe that Southeast Asia’s frontier economies are experiencing froth or bubbles of their own for the same reasons as larger economies in the region. Vietnam, Cambodia, Laos, and Burma are dangerously exposed to the eventual popping of China’s economic bubble as well as the popping of Southeast Asia’s overall bubble.

Cracks Are Beginning To Show

Southeast Asia’s financial markets were strong performers in late-2012 and early-2013 until news of the U.S. Federal Reserve’s QE taper plans surfaced in the Spring of 2013, causing many of these markets to fall sharply due to fears of reduced stimulus. This rout did not come as a surprise to me as I had been warning that hot money flows were inflating asset bubbles in emerging market countries, and I even published a report titled “All The Money We’re Pouring Into Emerging Markets Has Created A Massive Bubble” just a few months before these markets plunged. The sensitivity of emerging market asset prices and currencies to the U.S. Federal Reserve’s stimulus programs was an additional confirmation that the emerging markets bubble owed its existence largely to hot money flows. The ultimate ending of the Fed’s current “ QE3″ program – which many economists expect this year – is likely to put further pressure on emerging markets and contribute to the popping of their bubbles.

While most of Southeast Asia’s financial markets and currencies have been treading water since last Spring’s taper panic, Indonesia’s situation has continued to deteriorate, causing the rupiah currency to significantly weaken due to capital outflows. The rupiah is down by nearly 50 percent from its 2011 peak. Indonesia was hit harder by the taper panic than other Southeast Asian countries because of its worsening trade and current account deficits.

Thailand has been embroiled in political turmoil in recent months as opposition protestors have been demanding the resignation of Prime Minister Yingluck Shinawatra. Opposition members claim that Yingluck is carrying on the same corrupt practices as her billionaire brother, former Prime Minister Thaksin Shinawatra, who was ousted in a military coup in 2006. The protests have harmed Thailand’s tourism industry, which is expected to slow 2014 economic growth to half of what it would have been without the demonstrations. Thailand’s stock market has fallen sharply in recent months as a result of the political strife.

How Southeast Asia’s Bubble Will Pop

Southeast Asia’s economic bubble will most likely pop when the bubbles in China and emerging markets pop and as global and local interest rates eventually rise, which are what inflated the region’s credit and asset bubbles in the first place. Southeast Asia’s bubble economy may continue to inflate for several more years if the U.S. Fed Funds Rate, LIBOR, and SIBOR continue to be held at such low levels.

I expect the ultimate popping of the emerging markets bubble to cause another crisis that is similar (though not identical in every technical sense) to the 1997 Asian Financial Crisis, and there is a strong chance that it will be even worse this time due to the fact that more countries are involved (Latin America, China, and Africa), and because the global economy is in a much weaker state now than it was during the booming late-1990s.

I recommend taking the time to read my detailed reports on Singapore, Malaysia, Thailand, the Philippines, and Indonesia to get a better understanding of Southeast Asia’s economic bubble.

In the coming months, I will be publishing more reports about bubbles that are developing around the entire world – most of which you probably never knew existed. Please follow me on Twitter, Google+ and like my Facebook page to keep up with the latest economic bubble news and my related commentary.

Jesse Colombo By Jesse Colombo, Forbes Contributor
I'm an economic analyst who is warning of dangerous post-2009 bubbles

 Related posts:
1. Asian central banks fix the mess created by their governments 

Asian central banks fix the mess created by their governments


Tokyo: Asia's central bankers are being forced to juggle their day jobs with what their governments have failed to do - steeling their economies for the hard times.

Critics say many governments have done too little to remove barriers to domestic and foreign business investment, cut red tape, upgrade infrastructure and develop deep, well-functioning financial markets when the region was flush with cheap money.

Now that economic rocks are emerging as the tide of the Fed's easy cash recedes, central banks are having to step in, detouring from their price and financial stability mandates, to shore up weak economies.

India and Indonesia were first in the firing line of investors last year when the Fed's plans to scale back its $85 billion in monthly cash injections started to take shape. Both took emergency steps, intervened in markets and raised interest rates to shore up battered currencies.

Since then the Fed has started winding down its stimulus in earnest, putting emerging markets on the back foot once again as investors look to target the most vulnerable economies.

Indonesian and Indian authorities have improved their defences against rapid outflows but their governments have failed to tackle supply bottlenecks and market rigidities that fuel inflation and limit room for policy manoeuvre, economists say. Both face national elections this year that could lead to populist measures and further delay reforms.

In Thailand, months of political turmoil have paralysed government, leaving the central bank as the mainstay of economic support.

"Government and monetary policies should be fairly balanced," says Rob Subbaraman, chief Asia economist at Nomura in Singapore.

"In India, and increasingly Thailand, the governments have not done their part. There's a risk Indonesia goes this way as the elections draw closer," said Subbaraman, who since mid-2013 has been warning of emerging Asia's growing exposure to market turmoil.

Even in Japan and China, with their strong and stable political leaderships, central banks appear to be doing most of heavy lifting.

In Japan, a blast of central bank money has boosted the economy and markets, but Prime Minister Shinzo Abe's economic reforms have disappointed.

China's central bank is trying to rein in an explosion of off-balance sheet and risky lending as cautious government regulators resist speedier financial reform that would force markets to price risk more realistically.

Asian central bankers rarely air their frustrations in public. India's former central bank governor Duvvuri Subbarao was an exception, regularly sparring with New Delhi over economic reforms and rates.

Sometimes though, their concerns do bubble to the surface.

After a series of rate hikes by Indonesia's central bank, an official there in October voiced his vexation that the government was not tackling the root cause of a widening trade and current account gap - its own spending.

"We need to address the cause of illness when running a fever," Dody Budi Waluyo, executive director of Bank Indonesia economic and monetary policy department told Reuters at the time. "The medicine should not only be Panadol to lower the fever."

NEW RISKS

In picking up the reins from government, the risk is that central banks will deliver neither the stability they seek, nor the economic support that is needed.

In Japan, for example, the concern is that optimism spurred by the Bank of Japan's massive cash injections will fade without reforms to unshackle the economy's untapped growth potential and help overcome the problems of a fast ageing society.

The Chinese central bank's attempts to curb risky lending by calibrating supply of money market funds have triggered repeated cash crunches that threaten to ignite market panic.

Indonesian and Indian central banks may be forced to tighten monetary policy more than their slowing economies would otherwise have warranted because of fragile market sentiment and sticky inflation that remains high even when growth cools.

In an ominous sign for India, foreign investors have been net sellers of the country's stocks this year.

Thailand's central bank is under pressure to fill the void left by stalled infrastructure spending and provide the struggling economy with stimulus, but is well aware of the risks.

"Maintaining monetary policy in an accommodative mode for a long period of time runs the risk of delays in reforms as they may seem less pressing and the risk of financial imbalances build up," Bank of Thailand spokeswoman Roong Mallikamas said.

In Japan, one concern is that without fundamental reforms promised as part of Abe's "Abenomics" revival plan, markets will reverse and Japan lurch back into its deflationary equilibrium or "stagflation" - a spell of tepid growth and rising prices. Japan Risk Forum, which groups risk managers from Japan's major financial institutions, sees nearly a 50-50 chance of that happening.

"We cannot rely solely on monetary policy forever and the time will come when the government's resolve will be tested by markets, likely around summer," said Hiroshi Watanabe, head of state-run lender JBIC and Japan's former top financial diplomat.

OWN MAKING

To be fair, central bankers may have contributed to their own predicament by keeping monetary policies too loose for too long after the global financial crisis, either because of political pressure or fear of more turmoil.

Nomura estimates that taken as a whole, real interest rates measured as a difference between official rates and inflation in Asia's 10 biggest economies excluding Japan were negative for more than half the time since 2008 - a recipe for rapid debt buildup and property and stock market bubbles. By contrast rates were negative for only 16 percent of the 1996-2007 period.

"By over accommodating the Fed's easing, central banks allowed asset price inflation to occur, causing an intoxicating party in full swing," said Thirachai Phuvanatnaranubala, former Thai finance minister and deputy central bank governor. "With tapering, the party is over. Some emerging markets will now have to deal with the bubbles that crept up while everybody dreamily enjoyed himself."

There are also some signs of change. India is embarking on an ambitious monetary policy overhaul that would make it harder for the government to lean on the central bank, while the government has curbed gold imports and secured $34 billion in overseas financing to try to close its current account deficit.

Indonesia's ban on ore exports drew fire, but it is a sign Jakarta at least recognises the need to reduce its reliance on raw commodities exports. It has also taken steps to shore up public finances.

Still, central bank efforts can easily unravel once elections are in motion, said Toru Nishihama, senior emerging markets economist at Dai-ichi Life Research Institute in Tokyo.

"As elections are looming in many emerging countries this year, no matter how central banks tighten policy to control inflation, their governments are tempted to loosen fiscal policy, offsetting central banks' efforts," Nishihama said.

Sources: Reuters

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Sunday 2 February 2014

How and what the 12 zodiac signs will fare in Horse Year holds?

Renowned geomancer Jane Hor gives the low-down on how the 12 zodiac signs will fare in the Year of the Horse.

Rat (1936, 1948, 1960, 1972, 1984, 1996, 2008)

This year the Rat clashes with the Grand Duke. People born under this zodiac sign are likely to meet with changes in romance, career or their living environment. Changes can be good or bad, depending on the individual’s birth date and time, and other factors.

The Rat has to be vigilant as there are many inauspicious stars that will fly into their destiny palace.

They may encounter many obstacles in their career. Even slight negligence may result in wasted effort.

Avoid lavish spending to curb cash-flow problems.

You are on an emotional roller-coaster. Release your negative emotions wisely and beware of unscrupulous people around you.

You are prone to accidents and injuries this year. Be extra careful in outdoor activities, especially those involving heights.

Ox (1937, 1949, 1961, 1973, 1985, 1997, 2009)

This will be a prosperous year with plenty of opportunities. You may take on a high position, thanks to two powerful and auspicious stars.

Do not get carried away with success, though, or you may evoke jealousy from your colleagues, and end up with more foes than friends.

You should not have problems with wealth this year, and enjoy a steady income. Your investments will reap profits, too.

Invest wisely, work hard and avoid gambling.

Where relationships are concerned, be more understanding and tolerant towards your partner. Health-wise, watch your diet: avoid cold and raw food.

In 2015 (Year of the Goat), the Ox will clash with the Grand Duke directly. Your luck-flow will be in a turbulent state. Make preparations to face bad times next year.

Tiger (1938, 1950, 1962, 1974, 1986, 1998, 2010)

Your luck-flow is not significantly good as you have no auspicious stars. Stay vigilant and calm and you should be safe.

Career-wise, you have to deal with villains around you as there are lots of inauspicious stars surrounding you. Be on high alert as it is already difficult for you to dodge gossip and back-stabbing from unscrupulous people who will try to cause you “severe damage”.

Guard your job because there could be people who want to grab your rice bowl, or steal your credit.

Your financial luck is weak this year. Avoid gambling and making investments.

Love is elusive, so be patient.

Health-wise, be extra careful while on the road. Watch out for sprains and other physical injuries.

Rabbit (1939, 1951, 1963, 1975, 1987, 1999, 2011)

The Rabbit will enjoy many pleasant opportunities as they have many auspicious stars.

This is a good time to develop your career and realise your ambitions. The road to success is not without obstacles but you will eventually overcome them.

Beware of your tongue because you can get into trouble and cause dispute and bickering among your friends and colleagues.

This is also a good year for diversified investments but do so within your means.

This year, with the Ox, you will have plenty of opportunities for romance. You may have a short-term but memorable affair.

Beware of scandals and illicit relationships.

The married Rabbit who is planning to have a baby this year will have a high chance of conceiving.
Health-wise, do not indulge in wine. Also, pay attention to the health of elders in the family.

Dragon (1940, 1952, 1964, 1976, 1988, 2000, 2012)

You have opportunities to stand out in your career, but you have to be wary of how you handle social interactions. Avoid creating conflict with your colleagues and do not offend your superior. Your luck in wealth will fluctuate because of an inauspicious financial star, which may cause you to overspend and burst your budget.

Avoid gambling and high-risk investments or you may suffer serious financial losses.

Your love life remains stagnant and there is no significant breakthrough. The opportunity for a relationship is very slim.

Health-wise, beware of dangers on the road. This year, you are more prone to car- and water-related accidents. Avoid participating in water-related sports (swimming or scuba-diving) as you may encounter accidents and get injured easily. For those with children, pay attention to them to prevent accidents and injuries.

Snake (1941, 1953, 1965, 1977, 1989, 2001, 2013)

Your luck-flow turns positive this year as there are auspicious stars. Career-wise, you will be busier than before. Rewards and promotion will come your way, especially for white-collar workers.

However, you have to be cautious because there are a few inauspicious stars surrounding you that hinder your career development.

Your motto this year should be, “Action speaks louder than words”. Remember to put in extra effort to secure your promotion and increment.

Guard your wealth closely as it could come, and go, very quickly, especially your personal possessions. This year, you may lose your wallet.

Romance has its ups and downs, so manage your emotions.

Take good care of your health as you may easily fall sick. Get more exercise and rest to prevent serious illness.

Horse (1942, 1954, 1966, 1978, 1990, 2002)

The Grand Duke is sitting in the middle, so, if there is no celebration, there shall be calamities. Therefore, those born in the Year of the Horse may get into trouble easily this year.

If there is some celebration in the family, you might be able to avert calamities, but still you have to be on high alert.

Think before you leap as you are said to be offending the “yearly Grand Duke”. You may feel lost and moody and may make the wrong decisions. Avoid making decisions when you are in an unstable state of emotion, to avoid unwanted calamities.

There are many inauspicious stars hindering you from leading a better life.

Have more communication with your superior, clients or peers, as it could bring you surprising results.

Love-wise, you tend to feel depressed at times, and often find yourself eaten up by jealousy and fury.

Your health needs attention and you should beware of accidents. Donate blood or get a dental scaling in lunar May and November.

Be careful of food hygiene or you may experience food poisoning.

Overall, you are advised not to be too pessimistic and to exercise more caution when making decisions.

Try to travel as you may think more clearly after a short break.

Goat (1943, 1955, 1967, 1979, 1991, 2003)

The Grand Duke shall be your good friend this year and you will have excellent interpersonal relationships.

The Goat will enjoy good luck and bright prospects in their career, especially in jobs that require constant contact with people.

An auspicious star flies into your destiny palace; you may easily get help from your male peers. You have chances of a promotion or an increment.

Keep a low profile and be humble.

There are a few inauspicious stars surrounding you, which means that there are unscrupulous people (especially females) who will try to sabotage you and hinder your career development.

Your wealth is stable – you can expect a tidy sum from your mainstream income and also returns from your investments.

Spend and shop wisely because there is an inauspicious star that will cause you to spend lavishly, thus draining your wealth.

You will enjoy favourable relationships with people around you. Be careful of becoming overly friendly with the opposite sex. A third party may cause conflicts.

Health-wise, you may suffer from minor illnesses but that should not be too much of a concern.

Monkey (1932, 1944, 1956, 1968, 1980, 1992, 2004)

You will face numerous obstacles in your career. Very often, things do not progress smoothly because of the deliberate misconduct of some people around you. Do not be disheartened but be optimistic and pro-active. Never give up halfway or you will end up nowhere.

Career-wise, this is a year for conservative defence rather than aggressive attack.

Watch how you spend your money and avoid taking loans.

Health-wise, besides paying close attention to your physical and psychological well-being, take good care of the elders in your family. Go for regular check-ups as a preventative measure.

Rooster (1933, 1945, 1957, 1969, 1981, 1993, 2005)

The Rooster will enjoy a great performance in career. Although there are “risks and traps”, you will receive help from good people around you. When in doubt, seek advice and help from your seniors, especially women.

Pay close attention to your investment and wealth management to avoid major financial crises.

In terms of your love life, you may have many chances to meet many friends and some of them are your noblemen. For those romantic partners who are still in love, this is a good year to get married. Singles have good opportunities to meet the right partner.

Health looks good this year and shouldn’t be much cause for concern.

Dog (1934, 1946, 1958, 1970, 1982, 1994, 2006)

The Dog can easily receive help from people around them this year. This year, Dog people may have an excellent performance in career. If the nature of your work requires keen thinking (interior designer, composer or scripwriter), this year, you are full of creativity and have a high chance of climbing the career ladder. However, keep yourself in check. Do not become arrogant or you may lose the support of your friends.

Your wealth looks good this year. Both your mainstream income and other sources of income will yield returns.

Although you have lots of chances to meet people of the opposite sex through your career, romance won’t bloom and you will feel very lonely. Try to share your feelings with your partners or family members. Or join more group activities or learn something new to fill the emptiness.

Be aware of food hygiene as you may have food poisoning this year.

Pay attention to your own safety; you may encounter accidents or suffer injuries.

Pig (1935, 1947, 1959, 1971, 1983, 1995, 2007)

Last year, the Pig people had a clash with the Grand Duke. In the first half of this year, you are still affected by the clash. You have to be persistent, calm and patient in facing all your problems.

After autumn, your condition will improve, especially if you are in marketing or a job that requires you to liaise constantly with people. Career-wise, seek help when the need arises. Do not persist alone or you may end up a complete failure.

This year, you have a “minor depletion” star that will see you indulge in spending on luxury goods. You have to control your urge to spend, to avoid overspending. Besides your usual savings, guard your assets well to prevent theft or robbery.

Your health is poor this year, so be wary of contracting illnesses. Ensure you get enough rest to avoid falling sick. – Majorie Chiew The Star

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