S Korea flirts again with Tobin
James Tobin
South Korean government officials are flirting again with the idea of introducing taxes on financial transactions to curb rapid capital flows in and out of Asia’s fourth-largest economy.
Eun Sung-soo, director general at the finance ministry, told reporters on Wednesday that the government was considering “various” financial taxes to reduce volatility in capital flows and could strengthen existing capital control measures, if needed. Continue reading »
Davos 2013: warning to EM investors – remember 1994
Watch out for the Fed tightening. That’s the message from the Institute of International Finance, the bankers’ club, to investors ploughing funds into emerging markets.
Speaking in Switzerland on his way to the World Economic Forum in Davos, IIF managing director Charles Dallara warned that investors had “underanticipated” sudden turns in monetary policy in the past – and might do so again. He said: “Are we adequately risk aware? Are we adequately risk sensitive?… I am not at all sure that we are.” Continue reading »
Russia: the ins and out of capital flight
Worried about capital flight from Russia? Don’t be, says Renaissance Capital. Net outflows, the bane of the Russian economy for years, are dropping, and could turn into a (small) net surplus for 2013, given improving prospects for the global and Russian economy.
Fair enough. But that will still leave Russia far adrift of other emerging markets in terms of attracting foreign money. Investors will want to see radical shifts in the economic plans of the new Putin presidency before they even consider a rethink. Continue reading »
Russia: capital flight may not be quite as bad as it looks
Huge capital outflows have been a glaringly visible sign of Russian business people’s distrust of president Vladimir Putin’s rule. Worried about corruption, property rights and the rule of law, the rich have been funneling their money abroad. Right?
Wrong, actually. So says a study published this week which argues that Russian outflows are only half as big as officially reported, due to peculiarities in Russia’s statistics. The new analysis won’t be the last word on a complex subject – but it’s already prompted Russian officials to consider taking another look at the numbers. Continue reading »
Barclays: ride the EM tide but take care
Asian markets were down on Wednesday as investors judged that the recent liquidity announcement from the US Fed, the European Central Bank and the Bank of Japan may not stimulate economic growth as much as previous rounds of quantitative easing.
As Barclays Bank argues in a report, the central bank moves have improved sentiment by reducing risk, especially in Europe, and should be good for emerging markets. Ride the tide, the bank tells clients. But it’s very cautious about the economic outlook. So investors who climb on this particular surfboard had better watch out. Continue reading »
Guest post: Asean capital flows and credit – friends and foes
By Leif Eskesen of HSBC
The Asean-5 economies – Indonesia, Malaysia, Thailand, the Philippines and Vietnam – recovered very rapidly from the global financial crisis in 2008-09 on the back of sound economic fundamentals and a heavy and well-targeted dose of monetary and fiscal stimulus.
However, except for Vietnam, the recovery was aided by strong capital inflows that poured into the region following the crisis. The attraction was that these countries offered far better growth and interest rates than were available in the West. Moreover, exceptionally loose monetary policies in these advanced economies pushed capital flows into the region. Continue reading »
Counting the cost: EM wealth flight
In 2009, G20 leaders proclaimed: “The era of banking secrecy is over.” They pledged to close down secrecy jurisdictions that enabled banks to take risks off their balance sheets and allowed wealthy companies and individuals to evade tax.
It was an empty pledge, according to a weekend report by former McKinsey chief economist James Henry, and it is costing emerging market governments a lot of money. Continue reading »
FIIs pulling out of India, for now
After robust inflows in the first quarter of 2012, foreign institutional investors have pulled money out of India in April, to the tune of $105.4m.
By comparison, January, February and March saw inflows of $2.04bn, $5.13bn and $1.68bn, respectively. That combined $8.54bn helped save the fiscal year ending in March from being a total wash-out, bringing FII inflows up to $9bn after a disastrous 2011 for the Indian economy (one whose repercussions were felt in S&P’s outlook downgrade on Wednesday). Continue reading »
Guest post: return of capital is not a vote for the renminbi
By Victor Shih of Northwestern University
In the latest PBOC data release, Chinese banks, including the central bank, bought Rmb140bn worth of foreign currency in January. The increase of “position for foreign exchange purchase” in banks suggests that foreign exchange once again flowed into China, in contrast to the last three months of last year, when FX flowed out of China.
Some analysts interpret this as a return to business as usual as confidence returns to the renminbi. Yet is this the whole picture? Continue reading »
[Guest post]: sudden shifts in capital flows – a risk for EM investors
By Manoj Pradhan
Emerging market economies cannot decouple. More importantly, they shouldn’t try to if they want to protect growth. Wondering whether EM economies will decouple is surely pointless when we say in the same breath that markets are rapidly becoming more internationally integrated.
What has changed, however, is the origin and nature of EM crises. Ironically, it is the very success of EM economies in attracting capital inflows and lending from global banks that exposes them to the risk of a sudden shocks should these inflows slow down dramatically, or even reverse. Continue reading »
Bimbo joins LatAm bond bonanza
When the US sneezes, Latin America catches a cold – or so the saying goes.
But you wouldn’t know that looking at the LatAm debt market. Bimbo, the the world’s largest breadmaker, became the latest to join the LatAm 2012 bond bonanza with a 10-year debt sale. Continue reading »
India’s widening trade deficit
India’s trade deficit widened to a 17 year high of $19.6bn in October, according to Rahul Khullar, the country’s commerce secretary.
The record number highlights the underlying problems in India’s economy and represents a dilemma for the Indian central bank, already struggling with inflation, that might force it into another rate hike in the future. Continue reading »
UniCredit: watch Poland, Turkey and Ukraine for sudden capital outflows
A sharp reminder of the vulnerability of central and eastern Europe to shifts in short-term capital flows comes in a report from UniCredit.
While it doesn’t mention Greece, it is, in effect, all about Greece as it is looking at which countries could be most vulnerable to sudden capital outflows. Compared to the last crisis in the region in 2008/9, Russia, Kazkhstan, Latvia and the Czech Republic are in a better position to cope. But Ukraine, Turkey and Poland are worse off. Continue reading »
Guest post: Hong Kong and the renminbi risk
By Grant Chum of UBS
You might expect Hong Kong to be delighted with its central role in the internationalisation of the renminbi. The metrics have indeed been impressive: since mid-2010 RMB deposits have grown five-fold, to about 8 per cent of Hong Kong’s deposit base; monthly RMB trade settlements in the city have grown 13-fold over the same period and account for almost 90 per cent of China’s cross-border RMB trade settlements; the so-called dim-sum bond market has gone from zero to a US$15bn market in less than a year.
Yet it is also increasingly apparent that the rapid development of an offshore RMB market also poses an insidious threat to the stability of Hong Kong’s financial economy and its cherished peg to the US dollar. Continue reading »
South Korea’s pension fund to diversify
For South Korea’s National Pension Service, the world’s fourth-largest pension fund with $314bn of assets, diversifying its investment strategy has become a must, with its home market simply being too small to absorb all its investments.
Expansion into riskier assets also appears inevitable to meet growing public pressure to boost its returns, given the possibility of a shortfall of funds in coming decades as the country’s 46m population ages quickly. Continue reading »
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