By Max Clarke

Inflation in Asian countries, excluding India and Japan, is worrying equity investors, a survey of 5,270 investors carries out by Morgan Stanley has revealed.

“A combination of factors could cause inflation in Asia to peak at a higher level of 5.7% in June instead of our base case scenario of 4.9%,” said Chetan Ahya, Regional Economist for Asia at Morgan Stanley. “These factors include relatively strong domestic demand, recent stronger-than-expected external demand, a lagged response from policy makers and supply shocks in the form of higher food and global commodity prices that bring upside risks to inflation forecasts.”

With 58% of respondents anticipating inflation to exceed 6% in the next year, while 45% have not seen any increases in wages to match the high inflation, consumers across Asia have begun reducing their domestic consumption.

Mining and energy sectors appear less affected by inflationary pressures and are expected to continue to outperform healthcare and pharmaceutical sectors.

This depressed consumer confidence is further slowing growth and placing a downward pressure on the region’s investor’s expected return on investment.

Jonathan Garner, Chief Asian and Emerging Market Equity Strategist, concluded: “We remain below consensus on our target price for Asia Pacific ex-Japan equities with a cautious view due to slowing growth, rising inflation and heightened policy risk.”