Peter Elston is head of Asia-Pacific Strategy and Asset Allocation, responsible for Aberdeen’s multi-asset business in the region as well as articulating and communicating investment strategy. He has lived in Asia since 1988, joined Aberdeen in 2008, and is based in Singapore. Peter began his career at UK pension fund manager Mercury Asset Management, where he spent 11 years. For most of this time he managed Asian equity funds from Tokyo, Hong Kong, and Singapore. Peter appears regularly on TV, and has had numerous articles published. He graduated with a BA in mathematics and Oriental studies from Cambridge University.
You are based in Singapore and specialize in Asian economies. How much of a slowdown in growth is Asia experiencing now, and what are the impediments to regional growth?
As might be expected, Asia presents a very complex, mixed picture. Asian local currency bond markets performed well through the end of 2011 despite concerns over a sharper slowdown in the region and despite the shadow cast by credit downgrades in the Eurozone. Asian equities saw double-digit losses through 2011, but most stock markets in the region saw stocks rising by the end of the year.
Singapore itself is an interesting case. It has massive government debt, but this debt has been generated in the process of managing its exchange rate. It mops up a lot of current account liquidity by issuing government bonds, which are almost all held by local investors. For much of the time debt issuance in Singapore is not about the government’s funding requirements but has to do with managing foreign reserves. Singapore’s trade profile is distorted, in a sense, by the fact that the country has a massive refinery capacity. It imports oil to process in its refineries and exports the finished fuel. This is a very deliberate value-added play by the Singapore government. The refinery capacity provides an engine of growth for the economy and helps the country to get round the fact that it is 100% reliant on imported oil for all its energy requirements.
However, because the revenues from refining are very substantial, as are the costs of oil imports to feed the refineries, they distort the picture one gets of the Singapore economy. So the export figures for Singapore are always broken down into oil and nonoil exports, which provides a much better picture of how the economy generally is working.
What we see when we look at the nonoil figures for the economy is that Singapore put in some stunning growth in the initial stages of the recovery after the 2008 crash. In 2009, for example, the economy grew by 20% on an annualized basis. However, by mid-2010 this had started to weaken markedly. More recently, weaknesses in the economy have become more pronounced across Asia, not just in Singapore. Korea released fourth-quarter 2011 numbers in January 2012, and they were pretty weak. China, too, continues to slow, and its growth now looks likely to be just over the 8% mark, well down from the 10–11% growth it posted in 2010.
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