The latest asset prices rebound in Asia is not because of the loose financial conditions or the foreign capital deluge, according to the report of Cem Karacadag, an economist at Credit Suisse.
Rather, ameliorating sentiment among capitalists is probably the major driving force responsible for the latest increase in property and equity prices.
In another report, strategist Chua Hak Bin of Citigroup’s Singapore equity believes that the Straits Times Index can possibly gain 3,000 points before the end of March next year, lightened up by improved economic data in the next months.
“This economic recovery will continue to look V-shaped in coming months, as third-quarter gross domestic product and job growth continue to show a definite improvement”, he says.
In his report, Karacadag rebuts the “prevailing wisdom” that the latest rally in property and equity prices is caused by excessive liquidity by central banks, attempting to maintain interest rates down and making local currencies inexpensive in order to sustain economic growth.
“It has become fashionable to argue that Asia’s monetary conditions are too loose and that too much domestic liquidity is creating asset price bubbles”.
The financial policy of various central banks in Asia is cooperative “for good reason – domestic and external demand is still fragile and money and credit growth are still sluggish, with the notable exception of China”.
If these central banks print money and increase domestic liquidity, it will be in reserve money, the money supply that is directly controlled by the central banks. Instead, Asia’s reserve money balances might become stable or loosen up in coming months.
Karacadag defines liquidity as domestic banks’ total available funds for lending, which is abundant throughout the region for several years now, so it is improbable to be left behind in the recent surge of asset prices.
Depressed credit growth and demand explain the liquidity build-up in the banking systems of several Asian countries during these years. “In effect, domestic liquidity was there for the taking, but it was not wanted”, he said..
Sentiment has something to do with the quick increase of property prices in Singapore and Hong Kong than liquidity. He finally concludes that “Credit – which has been cheap for a while – was a necessary condition, but it wasn’t until sentiment recovered that things moved.”