0 ADB Argues Capital Inflows a Risk to East Asia

Capital inflows into emerging East Asia risk flooding the region with cash, creating asset bubbles, as investors seek higher returns from the fast-growing economies, according to the Asian Development Bank. Outstanding local-currency debt in the region rose 12 percent to $6.5 trillion in 2012, and increased foreign participation has reduced yields, the Manila-based lender said in its quarterly Asia Bond Monitor released on Monday. 

Authorities have taken measures to curb inflows, with Taiwan’s central bank telling lawmakers in a Friday report that global “hot money” has overtaken economic fundamentals in determining the direction of Asian currency and stock markets. “These developments might put upward pressure on exchange rates, making exports less competitive,” the ADB said in the report. 

“There are concerns that higher levels of liquidity could lead to excess credit growth, thus fueling asset-price bubbles in the region.” Six of the region’s currencies are among the top 10 performers among emerging markets in the past year, led by advances of 5.8 percent for the Philippine peso. Yuan positions at local lenders accumulated from sales of foreign exchange to the central bank rose a record 684 billion yuan ($110 billion) in January, official data showed March 5. 

The average yield on Asia’s local-currency debt fell 36 basis points in the past year to 3.6 percent on Thursday, according to indexes compiled by HSBC Holdings. A key consideration in managing capital inflows for several of the small and open economies of the region is to have well-developed and liquid government bond markets, the ADB said in its report. Emerging East Asia is classified as China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam. Developing Asian economies will grow 6.6 percent in 2013, bolstered by private consumption and investment, the ADB said in December.

Bloomberg
source : the jakarta globe