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Asian economies deal with hot money

11-01-2012 10:04 BJT

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Since the Fed announced a new round of quantitative easing on September 13th, emerging Asia has been a hot destination for portfolio inflows. With all this cheap money circulating in the region, how will Asian central banks respond to this as they manage their own economies?

Bloomberg Brief tracks equity portfolio flows for Korea, Taiwan, India, Indonesia, Philippines, Thailand and Vietnam. According to its data, 38 billion US dollars has come into these Asian markets since the beginning of this year.

Tamara Henderson, economist with Bloomberg, said, “For specific countries, it’s a big flow. I would imagine we would see prudential measures being announced to make sure that this flow doesn’t turn into asset bubbles or see central banks ease so to keep the currency from appreciating too fast.”

Most recently, Philippines and Thailand cut rates. Previously the central bank of the Philippines had suggested that they were concerned about currency strength and capital inflows.

The Philippine peso has gained more than six per cent against the US dollar since the start of the year, making it one of the world’s best performing currencies, on the back of strong portfolio investment flows.

In Singapore, the Monetary Authority of Singapore unexpected kept its bias for currency gains to contain inflation.

Henderson said, “Their decision came right after the QE3 announcement by the Fed. I think they saw that these flows would be a dominating factor for the Singapore economy. As has happened with previous episodes of QE1 and QE2, so they’ve seen the currency bias to be stronger and the central bank knows they can’t change the direction of the currency, they can just maybe slow the pace.”

Singapore’s consumer price index rose 4.7 per cent in September from the same month a year ago. Tightness in the labor market has been pushing up wages and consequently prices, whereas strong capital inflows have been fueling surge in property prices.

According to the October report from The Institute of International Finance, private capital flows to Emerging Asia should be around 510 billion US dollars this year and next. That includes direct investment, portfolio investment, bank and other private flows.

Reporter: “Whether the hot money will continue to flow into the emerging markets in Asia, Tamara thinks it all depends on risk appetite. What the Fed is trying to do is to maintain sentiment. And sentiment and risk appetite are the key determining factors for these capital inflows.”



Editor:Zhang Rui |Source:

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