KUWAIT CITY, Dec 4: KCIC, an investment firm specializing in investments in Asia, recently hosted a closed discussion with Ben Simpfendorfer, Chief China Economist at the Royal Bank of Scotland and author of the book ‘The New Silk Road’, on the economic and investment outlook on Asia’s markets for the year 2011. Simpfendorfer is an expert in the economic and social interaction between the Middle East and China. He joined the Royal Bank of Scotland in 2005, having previously been Senior China Economist at JPMorgan. He regularly appears on CNBC and Bloomberg and is quoted in major daily newspapers such as the Financial Times and the New York Times. Simpfendorfer speaks Arabic and Chinese and has lived in Beirut, Damascus, Beijing and Hong Kong.

KCIC Chief Economist Alessandro Magnoli Bocchi said: “As the world’s centre of economic gravity is moving “East”, the “New Silk Road” is re-emerging as an important East-East corridor. Asia and the Gulf are rising, and their cooperation is deepening. We are hence pleased to host Ben Simpfendorfer for the second time in Kuwait, as he continues to share invaluable information about the Asian markets with Middle East’s investors and analysts. As we come to the closing of the year, we particularly appreciate his outlook and projections on Asia, and China specifically.” Talking to an audience of Kuwait investors and analysts, Simpfendorfer delivered an outlook for market opportunities and risks present in Asia on short-term, medium-term, and long-term. He based his projections and analysis on multiple sets of key economic indicators, including labor movement changes, Chinese and Asian currency policies, export and import projections, sector-based insights, financial policy, and real estate trends, policy and analysis.

Simpfendorfer’s short-term outlook for Asia:

n China’s economy expected to grow robustly in 2011. In spite of worries about policy tightening and asset bubbles, China’s economy will continue to grow robustly in 2011 as domestic demand remains firm and inflation pressures ease temporarily in the second half of the year. After a massive destocking in 2010, China has started restocking and the trend is expected to continue until next year. China’s restocking means an increase in imports: 30 percent of what the country imports is related to its exports.
Over the next year, China will continue to shape global economy with an expected 9 percent growth in 2011.

n China’s currency expected to appreciate only modestly. The Renminbi is forecast to appreciate just 5 percent in 2011, as the government focuses on real appreciation of the currency, not only nominal. The risks of growing trade protectionism are thus rising.

n Capital inflows threaten regional asset bubble. The region is receiving record amounts of foreign investment as a result of its buoyant outlook and, to a lesser extent, undervalued currencies. The U.S. Federal Reserve’s second round of quantitative easing (QE2) will only result in even larger inflows raising the risk of asset bubbles.

Simpfendorfer’s medium-term outlook for Asia:
n China’s inflation risks will worsen in the medium-term. While China’s inflation problems will ease in the second half of 2011, any improvement will be temporary and a result of higher food output. Structural inflation problems continue to worsen and will threaten growth in the medium-term.

n Asia’s rebalancing is slow. While Asia appears to have recovered robustly from the crisis, the region is still overly reliant on exports. Governments have yet to aggressively raise the share of domestic demand to growth.

n China’s property sector is still a risk. China’s recent tight policies on the property sector have not resolved fundamental imbalances in the property sector, including high savings rates, tight capital controls and limited investment options. The risks of a property bubble could possibly grow.

Furthermore, with the increase of the population, the property sector continues to offer high to medium residential housing, overlooking the need for public housing which today represents 5 percent of total residential buildings (25 percent previously), an important change in fundamental.

Simpfendorfer’s long-term outlook for Asia:
n China’s urbanization rates to rise. China’s urbanization rates are low relative to the rest of the region. The migration of villagers to cities will be an important long-term driver of property demand and economic growth.

n Asia’s domestic demand to grow. Asia’s domestic demand will strengthen only to slow, but will become a major long-term growth driver.

n Outsourcing from China expected to be slow. China’s export sector is suffering from higher prices, but there are only limited alternatives to China owing to the country’s economies of scale and logistics sector. Outsourcing from China to other countries, such as India, will be slow.

KCIC was founded in 2005 with a capital of KD 80 million by an Emiree Decree with a mandate to develop investment opportunities in Asia towards building an Asia focused asset management company. The public company employs a team of specialists in markets in Asia and currently manages assets in excess of $450 million. Key shareholders include the Kuwait Investment Authority, the Sovereign Wealth Fund of Kuwait, National Investment Company, one of the leading investment banks in the Middle East, and Al Ghanim Industries, one of the largest conglomerates in the Middle East.