Tags: ashish | advani | asian | economy | growth

It's Not Too Late to Join Asia's Growth Surge

By    |   Wednesday, 15 Dec 2010 10:36 AM

If you believe you have missed the boat on the Asian growth story, think again.

I have been writing to you during the past few months about the spurts of growth seen all across Asia. The two economic giants of Asia — China and India — are still going gangbusters. And I expect a strong surge in early 2011.

What makes me believe this?

I have spent several years traveling and working in Asia, particularly China. And what I am hearing from my sources on the ground doesn’t surprise me.

There has been a lot of news lately about China’s economy overheating.

And this is true when it comes to inflation in China. The recent news about the rate of growth of loans in China continues to point to the loose-monetary policy still existent there.

Commercial loans have grown by 590 billion yuan in October, up 19.3 percent from last year. M2 is a common measure of calculating how much cash is sloshing around in the economy and system. And this measure came in at 19.5 percent year over year.

And here is the kicker. Due to the excessive pressure on reduction of loan growth and higher-than-acceptable inflation, the Chinese government has raised rates several times this year. In response, the local banks are informing the borrowers to wait a few weeks so that the year 2010 ends and then they will ratchet up lending again in early 2011.

This is a sneaky way of staying under the limits for the year that the government holds banks accountable for, while keeping the customer demand of loans going.

Folks, this is normal in China. The locals and the domestic banks know how to game the system and keep the fires of growth alive.

So while we still see a slowdown by the end of December and early January, we will see a large surge of growth in China in January and February, right in time for the Golden Week. And we will see a surge in currencies as well as celebration around the world.

Moving to India, the industrial production (IP) data for October came in strong at 10.8 percent growth over the last month. After a couple of months of weak data which had given rise to some consternation about the growth story, we have seen some serious growth data points again.

And what makes it meaningful are the details of the growth. The biggest portion of the growth was in the capital goods index. This means that the investment in capital goods continues at a very healthy clip. And when we see that over a period of time, we are investing in future production capacities.

This is refreshing compared to the United States, where we believe in wasting money on bailouts and tax cuts rather than investing in future production capacities.

While inflation is still a problem in both countries, Asia’s central banks are on the right path by raising interest rates. I do believe we will see the inflation rates come down in 2011 as the lag effect of the several rate hikes start showing results and excess cash is slowly soaked back.

So get ready and start making your bets for the upcoming surge in Asia.

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If you believe you have missed the boat on the Asian growth story, think again. I have been writing to you during the past few months about the spurts of growth seen all across Asia. The two economic giants of Asia China and India are still going gangbusters. And I...
ashish,advani,asian,economy,growth
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2010-36-15
Wednesday, 15 Dec 2010 10:36 AM
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