Southeast Asia is rapidly becoming one of the world’s most powerful economic juggernauts, driven by fast growth and effective monetary policies by local central banks.
International Business Times spoke to Rob Lutts, President and Chief Investment Officer of Cabot Money Management in Salem, Mass., about two of the region’s most important economies, Singapore and Malaysia.
An expert on global emerging markets, Lutts currently oversees more than $500 million in assets under management for Cabot’s clients. He has just returned from a ten-day trip to the area.
IBTIMES: Singapore has the fastest-growing economy in Southeast Asia and they recently raised their GDP forecast for 2011. What is behind their superb growth? Singapore is basically a financial hub, right? Or do they have a diverse economy?
LUTTS: Singapore’s economy is really driven mostly by world trading volume. Singapore is indeed a financial hub of Southeast Asia, so they have large presence in financial services and insurance and property management etc.
There is also a large port and ship management and repair industry in the region.
Their economy can grow dramatically at times and contract as well very quickly – which is all related to financial markets and world trade.
The government leadership in Singapore is very savvy – they are really great business leaders and have driven the economy with their business-friendly policies.
IBTIMES: The Singapore central bank can now permit their currency [dollar] to keep appreciating in value. What impact will this have on their economy?
LUTTS: Three years ago when I visited Singapore, the ratio between the US Dollar and the Singapore dollar was 1.45; last year in May it was 1.35, this year it is 1.23.
So the Singapore dollar relative to US dollar is very strong.
This makes goods made is Singapore more expensive. This will provide a headwind eventually.
IBTIMES: Given its huge economic growth, is Singapore now facing the threat of inflation and a housing bubble? What can they do to avoid this?
LUTTS: Most of Southeast Asia is experiencing fairly high levels of inflation. Wages in China and many other regions have risen by 15 percent to 20 percent over the past year.
This is a positive in the sense that higher incomes will drive consumption, but is a negative from an inflation standpoint.
IBTIMES: Who are Singapore’s biggest trading partners?
LUTTS: Singapore’s largest export partners are as follows: Hong Kong, Malaysia, Indonesia, China and Japan.
IBTIMES: Wouldn’t the contraction of Japanese economy hurt Singapore?
LUTTS: Singapore only does about 5 percent of its export business with Japan – so, it will have an impact, but not overwhelming.
IBTIMES: Malaysia’s economy is also growing at a healthy pace. What are their major industries and exports?
LUTTS: Malaysia’s major industries are as follows: oil and gas is quite large; tin, rubber, and palm oil are also major industries.
IBTIMES: The Malaysian central bank has been boosting the interest rate to tamp down inflation. Has it been successful?
LUTTS: Like most of South East Asia – they are all trying to keep inflation under control. There is no sign that they have succeeded yet. So we expect more increases are ahead.
IBTIMES: The Malaysian PM has promised projects to create 3-million jobs and make the country a developed nation by 2020. Has his program been on the right track or are their risks?
LUTTS: They have been quite successful at developing policies that are constructive to capital development.
So yes – GDP growth and increases in per-capita-income and per-capita-GDP are positive signs that they are moving ahead.
However, to move into developed-nation status in only nine years – that is a tall order. I think they can move somewhat toward this goal – not all the way.
IBTIMES: Generally speaking, are Southeast Asian nations now less dependent on doing business with the US and more focused on China and other emerging markets?
LUTTS: Everyone trades with everyone else. Naturally, the closer proximity leads to much more trading business. So South East Asian countries all do lots of business with each other and China.
U.S. companies are invested all across Asia and will continue to do so.
IBTIMES: What can the US government learn from the super-economies of Southeast Asia?
LUTTS: Money goes where it is traded best. Those governments like the US that implement and develop programs that destroy capital are driving some investments away.
The economies of South East Asia are led by governments that know how to balance budgets and keep debt to modest levels.
IBTIMES: How do rising commodity prices impact Singapore and Malaysia?
LUTTS: It is good for those companies that earn a living off the price of these products, but it is a negative for users of these products.
In 2010 it is estimated that India has subsidized a low oil and gas price for its citizens by $30 billion.
Malaysia and Indonesia are also subsidizing its gas and oil price as well. So this is negatively impacting budgets, however on a relative basis to USA they look very strong.