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Friday, June 25, 2010

Europe to focus on growth

Geithner tells Europe to focus on growth

Timothy Geithner says the world "cannot depend as much on the US as it has in the past"

Europe must focus on growth as well as cutting spending to reduce national deficits, US Treasury Secretary Timothy Geithner has told the BBC.

Speaking in Washington ahead of G8 and G20 meetings this weekend in Toronto, Mr Geithner said that world leaders must concentrate on the "paramount" challenges of growth and confidence.

He added the world could not rely as much on the US as it has in the past.

The European Union says securing growth "remains a priority".

The Group of Eight and Group of 20 rich and developing nations are assembling on Friday for three days of talks on how best to emerge from the worst financial crisis since the Great Depression.

But the Reuters news agency reported that world leaders at the meeting would admit that sickly public finances could hurt long-term growth.

'Hand in hand'
Many European governments, including the UK, have implemented severe austerity measures in recent weeks in order to cut debt levels.

UK Prime Minister David Cameron arrives in Toronto 
In pictures: G8/G20 leaders arrive Cameron urges focus at G8 summit
 
UK Prime Minister David Cameron, who has arrived in Canada along with other leaders, said in an article for the Globe and Mail newspaper: "No-one can doubt the biggest promise we have to deliver: fixing the global economy."

"I believe we must each start by setting out plans for getting our national finances under control," he added.
Herman van Rompuy, the president of the European Council, said that the EU's key words this weekend would be "growth, confidence and medium term".

"The restoring of confidence in budgetary policies go hand in hand with effective growth strategies," he said ahead of the meetings.

Growth challenge
  When asked if Europe faced the possibility of Japanese-style stagnation if it carries on with debt reduction policies, Mr Geithner said "Europe has the capacity to prevent that".
G8 Map  
G8/G20 summits security map
 
But he added: "Europe can make a choice to put in place the reforms and policies that will provide the possibility of stronger growth rates in the future.

"This meeting gives us the chance to sit together and look at whether we've got a broad strategy across the country that's going to strengthen this recovery."

"Our job is to make sure we're all sitting there together to focus on this challenge of growth and confidence because growth and confidence are paramount."

Some commentators in Europe argue that austerity measures should only be introduced once strong growth has been secured in the wake of the global downturn.

This was a more widely-held position until the Greek debt crisis focused policymakers' minds on cutting debt levels.

The Greek crisis showed that governments with high levels of debt find it very difficult to borrow money from international investors, money that they need to service existing debts.

Common goals
  In a letter to G20 leaders last week, US President Barack Obama warned against cutting national debts too quickly, arguing it would put economic recovery at risk.
Canadian flag  
Why we all want to be Canadian Canada row over $1bn bill
 
But Mr Geithner said the US and Europe "have much more in common than we have differences".

"We all agree that we have to restore responsibility to our fiscal positions. Everyone agrees that those deficits have to come down over time to a level that's sustainable," he said.

But he said that the US and Europe would take "different paths, at a different pace" in order to reach the common goal.

"It's going to require different things as we have different strengths and weaknesses," he said.
Mr Geithner said the US was not in a position to work out what were the best policies for European countries to pursue.

The treasury secretary said the US had laid out "very ambitious plans as well" to cut its deficit.
But he said the US was in a stronger position than many other economies to cut its debt levels.

"We're in the very good position of being able to deliver relatively strong growth rates [compared] to what we're seeing in other major economies," he said.

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China's yuan hits new high

Some analysts say the yuan is undervalued against the dollar by up to 40 per cent [EPA]
China has revised the exchange rate for the yuan, putting its currency at its highest level yet as international pressure builds on Beijing to allow the yuan to strengthen.

On Friday the Bank of China set the central parity rate, or the daily official level, at 6.7896 to the dollar, 0.3 per cent stronger than Thursday's 6.8100.

The rate is a weighted average of prices given by market makers, excluding highest and lowest offers.

It marks the yuan's strongest level since China freed its currency from an 11-year-old peg in July 2005 and moved to a tightly managed floating exchange rate.
On Friday the yuan weakened slightly in early trading to 6.7900 on China's main foreign exchange market.

'Basically stable'

In a vaguely-worded statement, the central bank said the yuan would remain "basically stable".

"This is not a big move, but it is significant. President Hu can point to it as evidence that China is serious about making its currency more flexible when he meets other G20 leaders in Toronto"
Brian Jackson, senior analyst, Royal Bank of Canada
China has tweaked the rate up and down this week ahead of the G20 summit and has a history of letting the yuan strengthen slightly before sensitive events, seen as an attempt to defuse criticism that it keeps the currency too low, giving Chinese exports an unfair advantage

Friday's move is widely seen as a bid to head off rancour at the upcoming G20 meeting in Canada following intense pressure on Beijing to embrace currency reform as part of efforts to enhance a global economic recovery.

Some experts say the yuan is undervalued against the dollar by up to 40 per cent.
Barack Obama, the US president, said on Thursday it was too early to determine the impact of China's limited currency reform although he viewed the move as "positive".

Speaking ahead of his meeting on Saturday with Hu Jintao, the Chinese president, on the sidelines of the G20 summit, Obama maintained that the "undervalued" yuan provided China "with an unfair trade advantage".

For the past two years China had effectively pegged the yuan at about 6.8 to the dollar to prop up exporters during the global financial crisis.

Criticism

The value of the yuan has long been a source of tension between China and its major trading partners, particularly the US and EU.

Critics say the policy gives Chinese producers an unfair advantage and prices competitors out of the market.

US legislators, unmoved by Beijing's action, have threatened to press ahead with legislation they said will treat "currency manipulation" as an illegal subsidy and enable US authorities to impose tariffs on Chinese goods.

China however repeated a warning on Thursday against "protectionist" retaliation over its currency policy, saying an appreciation in the yuan would not solve the Chinese trade surplus with the United States.

Brian Jackson, a senior analyst at Royal Bank of Canada in Hong Kong, said the yuan's limited moves this week might be enough to deflect criticism at the G20.

"This is not a big move, but it is significant," he told AFP.

"President Hu can point to it as evidence that China is serious about making its currency more flexible when he meets other G20 leaders in Toronto."
 Source: Agencies Newscribe : get free news in real time   

Best Places In Asia To Be A Landlord

Indonesia tops the list of places where you can make the most by renting out an apartment.


HONG KONG -- Property prices in some parts of Asia are skyrocketing; since the first quarter of 2009 China's rose 68% and Hong Kong's 31%. But some of the best real estate buys may be farther south. 

Indonesia, the Philippines and Malaysia top the list of best places in the region to be a landlord, according to rental-yield data calculated by the Global Property Guide, a research house and website. In those places the cost of buying an apartment is relatively low compared with the money that can be earned by renting it out.

"We try to explain to people where they should be investing," says Matthew Montague-Pollock, Global Property Guide's publisher. "One reason is for income. One is for capital gains."

In Depth: Best Places In Asia To Be A Landlord
 
Montague-Pollock's team collects its information using in-house research, information from accountancy and law firms, and central bank and national statistical data. It ranks 13 Asia-Pacific countries in terms of rental yields (technically, the gross annual rental income expressed as a percentage of the property purchase price) in upscale parts of their major cities. These include areas like Hong Kong Island and the central residential neighborhood of Boeung Keng Kang in Phnom Penh, Cambodia--places where at least moderately well-heeled professionals live, be they expatriate or local.

Jakarta boasts the best rental yield, 12.34%; Manila has 8.98% and in Kuala Lumpur a landlord can make back 8.76%. Rounding out the top five are Bangkok, Thailand, and Auckland, New Zealand.

"Not only will you make more money from the rent, but also the chance that the value of your property will appreciate is greater," Montague-Pollock says. "The yields are an excellent signal of property markets in general."

Local Indonesian markets are attracting the attention of fund managers and property developers from places like Japan, India and Singapore, according to Anton Sitorus, head of research at Jones Lang LaSalle ( JLL - news - people ) Indonesia. But they are finding some obstacles.

"Unlike investing through the stock market or through project-financing schemes, investing directly in real development projects or by buying property in Indonesia is regarded as difficult and complex for investors and individuals from overseas," he wrote in an op-ed in the Jakarta Post. "Current laws and regulations and a lack of market transparency are the main concerns hampering foreign investment."

Meanwhile, the Philippines is a particularly good pick, according to Claire Brown, founder and managing director of Claire Brown Realty, which specializes in investments in Southeast Asia for clients in the region as well as in China, Europe and the U.K.

"Most capital cities are much more expensive now. The Philippines is still really, really cheap for buying real estate," Brown says. "We've got a development in Ortigas, an up-and-coming CBD [Central Business District] in Manila. We have units for $70,000, which is ridiculously cheap compared to Hong Kong."

Number three Kuala Lumpur is another promising buy, Brown adds, pointing to a new residence called Verve Suites in a high-end suburb called Mont Kiara. Three months after opening, this property--a serviced one with amenities like a pool, gym, movie theater and restaurant--is half-owner-occupied and half-tenanted. Malaysia's investment channels are easier to navigate, she says.

"You can get bank financing up to about 80% even if you're foreign. The capital gains tax has been slashed to 5% so it's easy to get in and out of that market," Brown says. "There is an abundance of expats who are happy to rent, but there is also a huge amount of local interest.

If your tenants are a mix of local nationals and a smattering of expats, you’re going to have good, healthy rental income and very few void periods.”


There are some downsides, however, to becoming a landlord in these developing Southeast Asian markets. For one, there are often roadblocks facing foreigners looking to buy property.

"You can't just walk in as a big American fund and buy a building, necessarily," says Andrew Ness, executive director of CB Richard Ellis Research Asia. "The lack of openness is what tends to keep yields high."

By contrast a place like Singapore, he adds, has a "more pronounced boom-to-bust syndrome because of its openness to global capital." Though its yields are lower--and it ranks number nine on the list with a rental yield of 3.79%--it offers other pros.

"It's the most open economy with the least restrictions on foreign investors," Ness says. "It’s the most transparent. The only problem is that a lot of the best assets are held by government-linked properties. It's not a place in Asia where we see a lot of distressed debt."

Ness also warned of the risk of inflation in countries like Indonesia, Malaysia and Thailand, as well as the reservations some foreign investors still hold after the protests in Bangkok this spring and recent terrorist bombings in Bali and Jakarta.

Indonesia, though, didn't suffer the same consequences from the global financial crisis as other Asian nations. The archipelago's economy relies less on overseas investment, which contracted in 2008, and on exports, whose buyers cut back around the same time, according to Bagus Adikusumo, director of real estate research firm Colliers International Indonesia. Those developments make Indonesia's economic climate look more attractive and resilient by comparison to its neighbors, he says, because "the other countries are getting less and less rental yield and revenue." 

The growth of industry in Indonesia will also help boost property markets. "More and more companies that are growing and expanding are going to bring more and more expatriates," he says, citing companies like U.S.-based Marathon Oil ( MRO - news - people ) and Australia's Pearl Oil as well as financial firms like Standard Chartered ( SCBEF.PK - news - people ). One of Indonesia's biggest banks, CIMB Niaga, is also expanding and bringing Indian and Malaysian expatriates to Jakarta to work. "They need more and more good quality apartments for them to rent."

Aspiring landlords, take note.

In Depth: Best Places In Asia To Be A Landlord

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