Asia credit set to recover, claims ING Barings

Asian credit is set to recover by the end of the year, as domestic investors regain confidence and return to the region, according to ING Barings’ analysts, speaking at a press conference in Hong Kong today. Asian credit spreads have widened sharply in the wake of the September 11 terrorist attacks, with risk-averse investors shying away from Asian names in favour of low-risk US treasuries.

But an anticipated US recovery in the first quarter of 2002 will fuel a comparable revival in Asia’s fortunes, the analysts claimed. ING Barings believes a planned US fiscal package of up to $130 billion will provide a strong stimulus to the economy, while the emergency 1% easing in interest rates by the US Federal Reserve will set the foundations for a fast recovery. The investment bank also expects an additional 25 basis points of monetary easing by the end of the year.

“There is no reason why the monetary and fiscal measures will not work,” said Tim Condon, chief economist at ING Barings “There are no structural impediments in the US to prevent a recovery in the first quarter, and when the US economy stabilises, sentiment will improve markedly in Asia.”

Hong Kong, China, Korea, Indonesia, and the Philippines are expected to be the chief beneficiaries of any early US economic recovery, where strong domestic demand can be successfully generated as a commensurate for an “export-less” recovery, said Condon.

However, other Asian economies such as Taiwan, Thailand and Malaysia may suffer what Condon calls ‘Asiasclerosis’ – where GDP growth has been hampered by the difficulty of asset restructuring in the aftermath of the 1997-98 Asian crisis. The problem in ongoing restructuring will depress the return on capital and undermine domestic demand, claimed ING Barings.