Showing posts with label Asia. Show all posts
Showing posts with label Asia. Show all posts

Friday, 30 August 2019

Asia needs to manage its megacities better rather than build new ones

Asia's biggest cities, from Shanghai to Dhaka, are struggling to manage the impact of decades of growth. Some are sinking. Most are traffic-choked. And almost all struggle with chronic air pollution. Worst of all, coastal cities face the threat of being inundated by rising seas.
Indonesia’s capital Jakarta suffers these urban ills more acutely than most, which is why President Joko Widodo announced a plan last week to shift the government 900 miles away, to a relatively undeveloped section of Borneo. Indonesia isn’t the first Asian country to move its official capital and won’t be the last. But evacuating government officials and their families won’t solve the problems of Jakarta, Bangkok, Dhaka or any other megacity. Given how many people will continue to live in those urban conurbations, the focus has to remain on fixing what ails them.

The challenges faced by Jakarta and other developing Asian cities were seeded in the 1970s as countries across the region liberalized their economies. In Indonesia, land-use controls were aggressively deregulated in the 1980s while entire sectors of the economy were opened up to direct investment. Economically, the results were spectacular: Factories, shopping malls and housing developments sprouted up across Jakarta and the surrounding region.

Meanwhile, Indonesians, keen for opportunity, flocked to the city. Between 1970 and 2000, the population of the greater Jakarta region -- which now encompasses 12 municipalities or regencies -- grew from roughly 5 million people to over 20 million. And from 2000 to 2010, it added another 7 million people, making it the world's fastest-growing urban region outside of China. By 2030, greater Jakarta will be home to 35 million people, topping Tokyo for the title of world's most populous city.
The results are well-known. Jakarta is home to some of the world's worst traffic jams; drivers are accustomed to spending two hours to move three miles. That traffic accounts for 75 per cent of Jakarta's air pollution, which also happens to be among the world's worst. Jakarta’s metro only opened this year and isn't expected to make a noticeable impact for years, if ever.
Meanwhile, 60 per cent of Jakarta's residents rely upon often illegally pumped groundwater, in part because of how polluted other sources are. That’s caused the land to subside: Since the 1970s, parts of Jakarta have sunk as much as 13 feet, at a rate of almost 10 inches per year. Today, roughly 40 per cent of the city is below sea level and floods are a regular occurrence.
There’s little reason to think that relocating 1.5 million bureaucrats and their families -- as the current plan contemplates -- will relieve these problems for the tens of millions of people left behind in Jakarta. Indeed, the experience of other Asian countries suggests it will merely divert attention and resources. Malaysia's decision to relocate its capital from Kuala Lumpur to Putrajaya in the 1990s was partly intended to reduce traffic and pollution in the older city. Yet, 20 years on, both have gotten worse.
Like Malaysia and other countries, Indonesia has favored top-down technocratic solutions to Jakarta's problems, including building seawalls, clearing low-income communities from flood plains and now establishing a new capital. Indeed, the government recently announced that it plans to spend $40 billion on needed infrastructure improvements to Jakarta, in addition to the money promised to its new capital city.
Yet the real issue remains failures of governance in an era of fast urbanization. If the government can't effectively regulate real estate developers and land use, it certainly can't stop the city from sinking thanks to illegal groundwater pumping.
In this, Indonesia is hardly alone. In China, more than 50 cities, including Shanghai, are struggling to control land subsidence due to overuse of groundwater and uncontrolled development. Fast-growing Dhaka, Manila, and Bangkok are facing similar struggles. And it seems every up-and-coming Asian city confronts a crippling traffic and pollution problem as rising incomes increase the number of cars on the road.
To address these issues properly, Asia's governments need to be more responsive to voices beyond the vested interests that have been so crucial to building the region's economy. For example, in recent years slum communities along Jakarta's Ciliwung River have engaged in large-scale mapping of their environmental vulnerabilities, as well as local polluters. That should help efforts to clean up the river and ultimately reduce the use of groundwater.
Effective, responsive governments -- not new cities -- are what the denizens of Asia's megacities really need.

Tuesday, 20 August 2019

Over 20 years after Asia debt crisis, McKinsey sees signs of a repeat

More than two decades since the Asia debt crisis gripped the region, global consulting firm McKinsey & Co is warning that signs of a rerun are “ominous.”
Increased indebtedness, stresses in repaying borrowing, lender vulnerabilities and shadow banking practices are some of the concerns cited by McKinsey in an August report. Whether building pressures are “enough to trigger a new crisis remains to be seen” but governments and businesses need to monitor potential causes, authors Joydeep Sengupta and Archana Seshadrinathan wrote.

McKinsey’s warning shot comes as a slowing global economy puts pressure on earnings at Asian companies, and the US-China trade war makes debt investors more risk adverse. Still, fund managers point to improved credit metrics of Asian dollar bond issuers in recent years, and Moody’s Investors Service said last week it expects most Asian economies can offset the domestic impact of the global slowdown through monetary and fiscal policy measures.
McKinsey examined the balance sheets of more than 23,000 companies across eleven Asia-Pacific countries, and found firms in most of Asia face “significant stress” in servicing debt obligations. In countries such as China and India, those pressures have risen since 2007, while falling sharply in the US and UK during the same period, according to McKinsey.
The analysis looked at the share of long-term debt held by corporations with an interest coverage ratio of less than 1.5 times. At these levels, corporations are using a predominant share of their earnings to repay their debt, according to the study. In 2017, in China, India and Indonesia more than 25% of long-term debt was held by companies with a ratio of less than 1.5, it said.
Since 1997, financial regulators have put in place safeguards to prohibit a repeat of the crisis that engulfed Thailand, Korea, Indonesia and several other Asian nations and had long-lasting repercussions. Potential triggers of a crisis that need to be monitored include defaults in repayment of debt, liquidity mismatches, and large fluctuations in exchange rates, according to McKinsey.

Saturday, 23 February 2019

From the best to worst, India's stock market sets off alarm bells

Two months ago, it was Asia’s hottest stock market. Now, investors are shunning it.
India has wiped out $113 billion in value this year after winning the regional equity crown in 2018. Uncertainty surrounding upcoming elections, an ongoing debt issue, a government that’s making greater demands on the central bank and high valuations have kept investors on the sidelines.
“The outlook is not very bright inside here, and all the sunshine is outside as of now,” Jayant Manglik, president of Religare Broking Ltd., said from New Delhi.
ALSO READ: Market reaction: Pulwama attack may push rupee to 72-mark in the short term
Overall, stock funds took in a net 61.6 billion rupees ($866 million) in January, the least in two years and down 7 per cent from the previous month, figures from the Association of Mutual Funds in India showed. After withdrawing money to start the year, foreign investors have only dipped their toes back in, with $117 million of inflows in February so far, according to data compiled by Bloomberg.
Domestic participation in the equity market has “sharply slowed” and “abruptly dropped” this year, according to Rajesh Cheruvu, chief investment officer of WGC Wealth. Foreign portfolio investment flows into India have also been negative compared with other emerging markets, he added.

ALSO READ: India's market capitalisation down $274 billion in the past one year
Concern the forthcoming election is far from a shoe-in for Prime Minister Narendra Modi has also cooled risk appetite. Investors question whether the nation will get a clear mandate from any of the pre-poll alliances or whether India will have a “weak post-poll coalition coming together and forming a government, which might not be very stable,” Anand Shah, head of India investments at BNP Paribas Asset Management, said in a phone interview.
The India VIX Index has stayed above its three-year average this year, with a spike in cross-border tension only adding to the political uncertainty. High crude-oil prices have also worked against Indian equities and its currency, setting off a sell-off in the nation’s assets. The rupee is Asia’s worst currency this year, with a 1.9 per cent slide.
“Tale of two halves”
With the S&P BSE Sensex Index now trading at 27 times earnings -- near a record -- and above its five-year average of 21 times, valuations may be less than attractive for investors.
ALSO READ: India's market capitalisation down $274 billion in the past one year
“If you want to maintain that kind of multiple, then obviously we need to show eventually that earnings growth will drive markets,” Religare’s Manglik said.
And that may just be what’s coming for India. The long-term outlook for profit growth is improving:
Credit Suisse Wealth Management said earnings could improve further, especially in 2020, as policy changes start bearing fruit.
ICICI Securities Ltd., the nation’s largest brokerage, said Indian equities will see double-digit earnings growth for the next three fiscal years.
BNP Paribas Asset Management sees the 2019-2021 compound annual growth rate for MSCI India Index profits at 18.9 per cent.
“Given that 2019 will be an election year, we cannot wish the volatility away; however, we believe that the earnings recovery, albeit delayed, will take center-stage after the elections,” BNP Paribas Asset Management’s Shah wrote in his January outlook report, which he described as “a tale of two halves.”
ALSO READ: Markets seem to be factoring in ruling party's return: Ashish Gumashta
India has always had superior profit growth rate compared with other emerging markets and investors are seeing less disruption and more sustainability in the gains now than they have in the last four years, he said.
Rukhshad Shroff, a portfolio manager at JPMorgan India Fund, is optimistic.
“The coming months will involve some volatility, for sure, as India’s rambunctious electorate participates in what famously is the world’s largest general election,” he said. “Investors are likely to have the occasion to remind themselves that the best companies can gain share in a generally challenging environment. Long-term observers know that the opportunity in India remains very compelling.”

Thursday, 27 December 2018

Asian debt defaults likely to rise on shadow banking crackdown, rate hikes

A growing chorus of observers expect debt defaults in Asia will spread as weakening currencies and tighter liquidity leave riskier borrowers with higher refinancing costs.
Rising failures add to headwinds that governments have to navigate during a politically fraught 2019, with elections in India and Indonesia. Asian dollar bond market defaults tripled to at least nine in 2018 from the previous year, according to Bloomberg-compiled data.

In India, a landmark default by shadow lender Infrastructure Leasing & Financial Services Ltd. has tightened liquidity for non-bank lenders, while China’s deleveraging campaign and push to cut the number of zombie companies have prompted more failures.
Mounting nonpayments may sour sentiment in the credit market, but could boost business for investors in problem assets.
China
Edwin Wong, chief investment officer at Hong Kong-headquartered investment firm SSG Capital Management, which invests in distressed debt, sees the biggest opportunities in China and India amid tight liquidity.
The US-China trade war is also starting to hit companies, as rising interest rates pressure businesses, according to FTI Consulting, a firm that advises on restructuring.
“We are setting up the business on the premise that we will see an increase in defaults in 2019,” said John Batchelor, Asia head for corporate finance and restructuring at the firm, adding that the company is looking to increase its headcount in Hong Kong and China.
The crackdown on China’s $10 trillion shadow banking market is also contributing to a rise in defaults, as many entrepreneurs have limited access to the nation’s banking system, according to Ron Thompson, a managing director at Alvarez & Marsal Asia who leads the firm’s Asia restructuring practice.
NOTE: A US government delegation will travel to Beijing in the week of Jan. 7 to hold trade talks with Chinese officials, two people familiar with the matter said.
India
In India, the overhauled bankruptcy regime is likely to continue to put pressure on companies to sort out their debt problems or be forced into insolvency. The abrupt resignation of Urjit Patel as central bank governor has prompted some to question his successor’s independence.
While it’s too early to tell what the the new governor will do, the government’s “concerted efforts” to clean up the banking sector and create better protection for creditors should remain, according to SSG’s Wong.

As cash-crunch eases, India's economy starts picking up pace again

India is showing signs of overcoming tight money conditions, with lending and business activity picking up in Asia’s third-largest economy.
An overall activity indicator measuring "animal spirits" moved two notches up in November from a month ago. The gauge, compiled by Bloomberg News, reflects strength in new orders boosting business activity, but more importantly a rebound in a liquidity indicator.

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Consumer sentiment and demand remained subdued, but the government’s decision in December to slash taxes on some goods and services may help stoke an economy that saw expansion slow in the three months through September. Here are the full details of the dashboard:
Business Activity
November saw activity in manufacturing and services’ sectors pick up. Inflows of new work expanded at the fastest pace in over two years, supporting further job creation and an uptick in business confidence. The picture for prices was mixed as input-cost inflation hit a seven-month low, but firmer demand enabled firms to hike their charges to a larger extent.
The Nikkei India Composite PMI Output Index rose to 54.5 in November from 53.0 in October, the fastest expansion in private-sector activity since October 2016. The Nikkei India services gauge rose to the strongest since July, with firms highlighting greater client numbers, favorable market conditions and sales growth.
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Exports
Exports in November barely grew from a year ago, and posted a decline from October as a global slowdown started to bite. According to Aditi Nayar, an economist at ICRA Ltd, a double-digit contraction in exports of gems and jewelry and engineering goods weighed down non-oil shipments.
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Still, the trade gap narrowed slightly as softer crude-oil prices capped the import bill. A smaller deficit should help stabilize the rupee, and together with inflation that slowed sharply in November, it opens room for India’s new central bank governor to shift to an easing bias and possibly cut interest rates next year.
Consumer Activity
Data from the Society of Indian Automobile Manufacturers showed passenger vehicles sales declined 3.4 percent in November from a year ago. The robust pace of growth in commercial vehicles and two-wheeler was also hit.
A survey from the Reserve Bank of India this month showed consumer sentiment has taken a knock on the back of increasing worries about the economy and rising concerns about jobs. The Consumer Confidence Index dropped to 93.9 in the latest gauge from 94.8 in September, the RBI said.
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But there are signs that the worst might be over. Demand for bank loans strengthened -- up 15 percent in November from a year ago.
The Citi India Financial Conditions Index shows some easing in the considerable tightening of liquidity. The index includes indicators such as short-term money market rates, government bond yields, the yield curve, credit and credit default spreads.
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Industrial Activity
Growth in infrastructure industries -- which contribute 40 percent to factory output -- picked up in October, due partly to an improvement in the output of crude oil, coal and cement. Overall, growth in the index for industrial production gathered pace, expanding 8.1 percent in October from a year ago. Data for both indicators are available with a month’s lag.

Sunday, 3 June 2018

It may be too late to invest in this sparkling equity market; here's why

Most of Asia’s stock markets fell in May -- New Zealand was one of the rare exceptions. That could mean the future won’t be as bright.
Shrugging off trade tensions and Italy turmoil, the S&P/NZX 50 Index just posted its best month of the year and the biggest gain among regional gauges. As of Thursday’s close, it was on track to become one of the world’s best-performing developed equity markets for 2018.

But at almost 20 times estimated earnings for the next 12 months, the benchmark measure is trading above its five-year average valuation and is almost one-third more expensive than the MSCI All-Country World Index. The S&P/NZX 50 Index fell as much as 0.8 per cent on Friday.
“The New Zealand market is relatively fully priced,” said Shane Solly, a fund manager at Harbour Asset Management Ltd. “And against its global peers, it’s fully priced.”
The New Zealand equity gauge was up 3.1 per cent for 2018 as of Thursday’s close, set for a for a seventh straight year of advances. “Sound” corporate earnings, investors turning to safer options amid rising global turmoil, and a reshuffle of MSCI Inc.’s global index have helped propel New Zealand shares higher this month, Solly said.
But for those seeking returns, it could be too late. The benchmark is poised to rise about 1.1 per cent over the next 12 months, the least among 18 regional stock gauges as of mid-May, based on price targets of index members compiled by Bloomberg.

Wednesday, 16 May 2018

Funds favour India for returns; not China's Belt-and-Road project

Some of Asia’s biggest infrastructure investors are seeing plenty of opportunities in India. In China’s mammoth Belt-and-Road initiative, however, not so much.
India is a key market for Macquarie Group thanks to strong economic growth and state asset sales, said Frank Kwok, co-head of Asia Pacific at Macquarie Infrastructure & Real Assets. Hence its recent purchase of nine toll-roads with charges indexed to inflation.

China’s Belt-and-Road, however is more driven by geopolitics than investment returns, he said at the Bloomberg Invest Australia summit in Sydney on Wednesday.
“It’s very much a China-led initiative, but really it’s about the entire region,” said Kwok. “But because one of the main drivers is that it’s for China to exert its influence over the region, financial returns are probably not the top priority.”
Asia’s developing economies will need to spend about $22.6 trillion on projects like roads, bridges, ports and railways over the 15 years to 2030 in order to maintain economic growth and reduce poverty, according to the Asian Development Bank. China has stepped in to fund some of those investments with Belt-and-Road.
Grand Plan
President Xi’s vision, first proposed in 2013 and now enshrined in the Communist Party’s constitution, involves spending as much as $1.2 trillion on railways, roads, ports and power grids over the next decade, according to Morgan Stanley. The intent is to open new business opportunities for domestic companies and extend China’s reach -- even though the route cuts through multiple conflict zones and some of the world’s most corrupt countries.
Still, India poses its own challenges, said Cyril Cabanes, head of Asia Pacific infrastructure transactions at Caisse de Depot et Placement du Quebec, Canada’s second-biggest pension-fund manager. He says the opportunity is clear, but the deals are slow to come.
“The size of the market is well known, but the velocity of deals coming to market and getting done has been generally fairly low,” he said. “It’s not just about putting capital in, it’s about generating returns and then moving on to the next opportunity, which India hasn’t quite graduated to.”