Roach Sees China Better Placed Than India to Withstand Slowdown

January 12, 2012, 1:33 AM EST By Michael Heath

Jan. 12 (Bloomberg) -- China has scope to loosen fiscal and monetary policy, making it better placed than India to weather a global economic slowdown, said Stephen Roach, non-executive chairman of Morgan Stanley Asia.

China is bringing inflation under control and has a small budget deficit, Roach said in an interview today with Bloomberg Television. In contrast, India has a currency under pressure, an “inflation problem” and a large fiscal shortfall, he said.

India’s “got its hands tied: It can’t cut interest rates because of the inflation and currency issues, and it’s got no leeway to increase its budget deficit,” Roach said. “India is in a much tougher place right now than China in the midst of this weaker global economy.”

Roach’s views differ from those yesterday of Nouriel Roubini, the co-founder and chairman of Roubini Global Economics LLC who called China’s growth model “challenged” and said India is “positioned well.” The two developing economies account for more than a third of the world’s population.

The International Monetary Fund is preparing a “substantial” cut to global economic projections that in September showed China and India leading the world’s recovery this year.

Prime Minister Manmohan Singh’s efforts to bolster the Indian economy have been hampered by corruption scandals, inflation and the decision last month to stall the easing of foreign investment rules in multibrand retail.

Indian Inflation

Indian central bank Deputy Governor Subir Gokarn said last week the Reserve Bank is “very concerned” about the impact on inflation from the rupee, Asia’s worst-performing currency in the past year after sliding 13 percent.

Roubini said yesterday that China’s growth model “is now challenged” because the U.S. can no longer be the consumer of first and last resort. “Unless China changes its growth model there’s even a risk of a hard landing in the next couple of years,” he said

“In relative terms, India is actually positioned well,” Roubini said in an interview with Bloomberg UTV in New Delhi. At the same time, the pace of “structural reforms” in India has been “mediocre” and unless India pushes ahead with those changes, economic growth in “absolute terms” will “disappoint,” he said.

India’s economy expanded 6.9 percent in the third quarter of 2011 and the Reserve Bank paused rates last month after a record 13 increases since mid-March 2010, as the benchmark gauge of inflation dropped to a one-year low of 9.11 percent in November.

China’s Growth

Roach said today that China is “very serious about engineering a shift” from an investment- and export-led economy to consumer-driven growth.

“You’ll be pleasantly surprised at the progress they make in building out a consumer-led growth model,” he said. “I’m of the view that we can look for positive surprises from China not negative surprises.”

The IMF is scheduled to release revised global projections on Jan. 24. Olivier Blanchard, the Washington-based fund’s chief economist, said in a Bloomberg Television interview last week that with European growth “very close to zero at this point,” there would be a “substantial” cut to the most recent 2012 global expansion estimate of 4 percent.

--With assistance from Susan Li in Hong Kong. Editor: Brendan Murray, Sunil Jagtiani

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net

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Vietnam Signals Rate Cuts as Asia’s Fastest Inflation Eases

January 12, 2012, 12:40 AM EST By Bloomberg News

Jan. 12 (Bloomberg) -- Vietnam signaled that it may cut policy interest rates to “more suitable” levels after the first quarter and weaken the dong this year as Asia’s fastest inflation eases.

“The central bank will adjust policy rates to more suitable levels, aiming to help ease the average level of market interest rates,” central bank Governor Nguyen Van Binh said at a press conference yesterday.

Vietnam faces a trade deficit, risks in the banking sector and slowing economic growth as the global recovery falters. While Indonesia and Thailand have cut borrowing costs in recent weeks to shield expansion, the World Bank and International Monetary Fund said last month Vietnam may undermine progress toward economic stability if it loosens monetary policy too soon.

“Based on recent policy statements they’ve made and the fact that inflation is slowing and growth is weakening, and given the pressures they’re under, I would be 99 percent sure that he meant that the next adjustment in rates would be down,” Gareth Leather, a London-based economist at Capital Economics, said after Binh’s comments.

Vietnam needs to show credibility by sustaining stabilization efforts, Victoria Kwakwa, the World Bank’s country director in the nation, said yesterday in an interview in Hanoi.

“They have the opportunity to show that they are breaking with the past,” she said. “Vietnam is now about sticking with macro-stability when it is needed and not just throwing it to the wind when we have pulled back from the edge of the cliff.”

Weakening Currency

Consumer-price growth in 2012 may be less than 12 percent at worst and 8.5 percent to 9 percent in a “good” scenario, Binh said at an economic conference yesterday in the capital, compared with 18.13 percent in December.

Vietnam’s dong weakened 7.4 percent against the dollar last year, including a devaluation of about 7 percent in February. The currency climbed 0.1 percent to 21,013 per dollar yesterday. The VN Index of stocks closed up 0.8 percent.

“We believe that 2012 will be a hard year, a challenging year for Vietnam’s economy,” Binh said. “Slowing inflation is a prerequisite for interest rates to drop, but it doesn’t always happen like that.”

Purchases of dollars and gold by Vietnamese seeking stores of value have put pressure on the dong. Binh said the currency will gradually depreciate 2 percent to 3 percent this year.

The nation will also focus in the first quarter on easing bank liquidity challenges, including through restructuring five to eight lenders, Binh said.

Asset Quality

The banking sector is showing signs of stress and asset quality remains a “concern” given “unusually high” credit growth in recent years, the World Bank said last month.

Last year, the State Bank of Vietnam unveiled plans to create a three-tiered financial industry dominated by 15 lenders as part of efforts to allay concerns over the banking system.

Credit in Vietnam expanded 13 percent in 2011, Binh said. The nation targets a balance of payments surplus of $3 billion in 2012 and enough foreign-exchange reserves to cover 12-15 weeks of imports by 2015, he also said.

Vietnam’s inflation rate in December moderated from 19.83 percent in November. It remains the fastest in a basket of 17 Asia-Pacific economies tracked by Bloomberg.

If inflation eases to 9 percent, deposit rates will fall to 10 percent to 11 percent, Binh said. Interest rates will be stable in the three months through March, he said.

The State Bank of Vietnam cut its repurchase rate to 14 percent from 15 percent in July last year. The refinancing rate is 15 percent and the discount rate is 13 percent.

The economy, a production hub for companies such as Intel Corp., grew 5.89 percent in 2011, down from 6.78 percent in 2010.

--Diep Ngoc Pham, Nick Heath, Nguyen Dieu Tu Uyen and Jason Folkmanis, with assistance from Nguyen Kieu Giang in Hanoi. Editors: K. Oanh Ha, Sunil Jagtiani, Jake Lloyd-Smith

To contact Bloomberg News staff for this story: Diep Ngoc Pham in Hanoi at dpham5@bloomberg.net; Nick Heath in Hanoi at nheath2@bloomberg.net; Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net; Jason Folkmanis in Hanoi at folkmanis@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Asian Stocks Swing Between Gains, Losses on U.S., Europe Concern

January 11, 2012, 1:32 AM EST By Jonathan Burgos and Yoshiaki Nohara

Jan. 11 (Bloomberg) -- Asian stocks swung between gains and losses as optimism about the U.S. economy tempered concern Europe’s debt crisis is worsening ahead of a German bond sale.

James Hardie Industries SE, a supplier of building materials that gets most of its sales in the U.S., climbed 3 percent in Sydney. AU Optronics Corp., a supplier of liquid crystal displays to companies including Nokia Oyj and Dell Inc., gained 4.4 percent in Taipei. China Unicom (Hong Kong) Ltd. fell 3.3 percent amid concern competition will increase among mainland carriers.

“There are more positive signs particularly on employment and consumer,” spending in the U.S., said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The outlook in the U.S. is for modest growth this year, and that’s better than Europe. Expectations are Europe will be in a recession.”

The MSCI Asia Pacific Index slid 0.1 percent to 115.98 as of 2:30 p.m. in Tokyo, with five shares rising for every four that fell. The gauge advanced 0.9 percent last week as manufacturing growth from China to the U.S. bolstered confidence in the global economy.

Australia’s S&P/ASX 200 Index increased 0.9 percent. Hong Kong’s Hang Seng Index was little changed. Japan’s Nikkei 225 Stock Average rose 0.2 percent. South Korea’s Kospi Index lost 0.5 percent.

China Inflation

China’s Shanghai Composite Index decreased 0.6 percent, heading for its first decline in four days, on concern inflation will hamper the government’s ability to ease lending curbs. A report due to be released tomorrow will probably show consumer prices rose 4 percent in December.

Futures on the Standard & Poor’s 500 Index fell 0.2 percent today. The gauge rose 0.9 percent in New York yesterday as global equities rallied amid bets that China will ease monetary policy to spur growth in the world’s second-largest economy.

Exporters advanced as U.S. employers hired 4.15 million workers in November, 107,000 more than in the prior month, the Labor Department said yesterday. A survey by Chief Executive magazine showed confidence among American CEOs rose last month to the highest level since May.

--Editors: Nick Gentle, John McCluskey

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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Opportunity in China Real Estate Stocks, UBS Says

Zynga IPO Outlook July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at

July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at YCMNet Advisors, Bob Rice, general managing partner at Tangent Capital Partners LLC, Paul Martino, managing director at Bullpen Capital, and Paul Bard, director of research at Renaissance Capital LLC, talk about Zynga Inc.'s plan to raise $1 billion in an initial public offering and the outlook for the company. (Excerpts. Source: Bloomberg)

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