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Moves in EU, China key to return of capital inflow to Asian markets

Publication Date : 29-06-2012


The second wave of capital inflows to Thailand and other Asian stock markets could take place in the second half of this year if investors become more confident about lower risk in the European Union and on how the Chinese government manages its economy, Merrill Lynch Wealth Management says.

Meanwhile, Thai Finance Minister Kittiratt Na-Ranong for the time being has ruled out additional measures to counter the possibility of an economic downturn, as he has confidence that European leaders can manage their troubled economies.

Victoria Ip, managing director of Merrill Lynch (Asia Pacific), said yesterday: "I don't expect any concrete solution from this week's EU leaders summit, but I expect a strong commitment to handle the issue to come out of this summit, and it'll improve market sentiment."

She said the EU was likely to slip into recession, as the bloc's economic growth would be minus-0.7 per cent this year, and Spain and Italy, the third- and fourth-largest European economies, will contract by 2-3 per cent.

While US gross domestic product will expand by 1.9 per cent, China will grow by 8 per cent and emerging markets in Asia by 6 per cent, she said.

Ip expects the Chinese government will introduce a new stimulus package but it may be a fraction of the size of the one launched in 2008. This time, China is expected to target its spending at social housing, renewable energy and other environmentally sound projects, she said.

She also expects China will manage a soft landing after the previous stimulus package created a property bubble as local governments spent too much on such projects. The latest data showed the Chinese economy slowing more than previous thought. Now Chinese policy-makers are more flexible on bank reserves and have also cut policy rates to stimulate growth, she said.

Ip is still optimistic about the US economy, where private companies are expected to maintain their profitability thanks to low interest rates, technology cycles and lower labour costs. However, there is a question how long they can sustain profitability if unemployment remain high, she said.

Kittiratt said he believed that strong countries in Europe would help the weaker countries so the EU would be able to find a way out of its economic woes.

"The situation now has stabilised and the [Thai] government does not need to issue additional measures," he said.

The government has already planned to run deficits totalling 700 billion baht (US$21.94 billion) for this and next fiscal years, aimed at stimulating growth, and plans to invest 350 billion baht ($10.97 billion) in flood-prevention infrastructure.

He said three sectors had been adversely affected by the EU crisis: jewellery, textiles and electronics. But Thailand will be able to export frozen chicken to Europe, which had banned it for several years. As well, more textile products could be exported to Eastern Europe.


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