Nov 9, 2012

Malaysia - Asia to continue benefiting from developed economies' slower growth

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As the global economy continues to stabilise, capital flow into Asean and Asia at large will remain positive as the appeal of developed countries wane further.

As global economy showed signs of improvement, he foresaw economic activities picking up with continued appetite for Asia, said UBS global equity strategist Christopher Ferrarone.

“Capital flow would remain intact in Asia, with foreign direct investments continue to flow into the region from global investors particularly seeking higher growth rates and returns,” he said at a conference call.

“The below trend slow-growth in developed countries is expected to persist into the near future so investors would still be drawn into the higher growth offered by Asia,” Ferrarone said.

As for global equity markets, he said UBS had a constructive view of the outlook.

Ferrarone said with President Barack Obama still helming the US government, the election had not changed the American economic backdrop.

“Much of how stock markets will perform is reliant on the political outcome in the negotiation over the fiscal cliff in the United States,” he noted.

“Ultimately, if the US Congress successfully reaches a conclusion, that should remove a major headwind in the equity markets and markets should produce returns in the months ahead.”

Ferrarone noted the significance of the fiscal cliff on world markets. “Going over the fiscal cliff would be a disaster to the global economy as the chances of the United States entering a recession would be very high and there are weaknesses in Europe still.”

However, regardless of the fiscal cliff, the world economy has begun stabilising as trade has gone up in the United States and recent export data showed countries like China supporting the improvement, according to Ferrarone.

“The underlying fundamentals are there and I see from the past couple of months, the support has come from Asia,” he said.

Ferrarone said market fluctuations pointed toward an earnings momentum.

“There are also an increase in global monetary policies from many major central banks which is important for the markets,” he said.

UBS projects a 2.1 per cent gross domestic product growth for the United States this year and 2.3 per cent for next year, assuming a 1 per cent drag from the fiscal measures.

The US fiscal cliff is a US$600 billion (1.83 trillion ringgit) package of automatic tax increases and spending cuts that will take effect come January 2013 unless Congress can agree on a debt reduction.

Liz Lee

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