By Nicholas Fang

Concerns over inflation and a possible continuing fallout from the United States sub-prime crisis have made fund managers in Singapore pessimistic about economic growth this year.

A poll of 15 fund managers by OCBC Bank's wealth management unit exposed fears that the slowdown could even stretch into next year.

OCBC said in a statement yesterday that its recent Fund Poll showed fund managers as being guarded about the economic outlook.

They were also expecting growth to be sluggish, at least for the rest of the year - and possibly next year.

Among the major concerns expressed by fund management firms such as Aberdeen Asset Management and Henderson Global Investors was the possibility that the full impact of the US sub-prime crisis had yet to be felt.

Henderson said the risk of a 'serious seizure' to the global financial system might have passed, but the full impact of the crisis on economic activity had yet to be felt.

'Banks in the US and Europe have tightened credit conditions aggressively, and the lower credit availability will hold back economic activity,' the survey quoted Henderson as saying.

Aberdeen echoed this sentiment. It pointed to continued housing and credit problems as a likely reason why the US economic slowdown was so firmly entrenched.

'House prices in the US are likely to fall further, and we may see more write-

downs from financial institutions on mortgage-backed securities that use owner-occupied homes as collateral,' it said.

The US sub-prime fallout aside, the other major concern raised in the survey was the spectre of global inflation.

DBS Asset Management said: 'A key determinant of future growth will revolve around the approach that major central banks will take to tackle the higher inflation rates.

'The harder the line taken in terms of raising interest rates to combat the situation, the worse the final outcome for growth becomes.'

Despite the gloomy outlook, the fund managers polled believed that selective investment opportunities still existed.

Lion Global Investors said: 'We like investment themes in Asian infrastructure and large cap, high-quality companies in Asia with a greater domestic focus, as we believe that the region's relative structural fundamental strengths remain intact.'

Other attractive investment sectors included commodities, both hard and soft, which would do well in inflationary environments, as well as energy and basic resources that had positive industry fundamentals, according to the survey.

This article was first published in The Straits Times on 28 June 2008.