Asian money markets attractive for investors


There was a time when coup threats and constitutional crises were turnoffs to foreign investors considering emerging markets. These days it seems no amount of turmoil can deter them. In Thailand, despite huge street demonstrations, foreign investors have poured $2.7billion into the stock market so far in 2006, the biggest inflow of overseas funds in more than five years.

Even when the prime minister resigned in early April, another $552 million rolled in that week. The deluge of funds has helped Thailand’s benchmark stock index edge up more than 7%.

Its currency, the baht, is up about 9% against the United States dollar so far this year. In the Philippines, the president is facing protests and accusations of corruption after warning in February that elements of the military were planning a coup d’etat. Yet foreign purchases of Philippine stocks are at five years highs, the benchmark index is up 3.4 % and the Philippine peso has appreciated about 8%. To some extent, this remarkable sangfroid with regard to Southeast Asia stems from a faith that political turmoil is not undermining economic growth.

But economists and analysts say there is a bigger factor, a glut of global savings that is making cheap capital available to both heavily indebted rich economies and riskier developing countries.

The resulting avalanche of global investment capital has become largely impervious, they say, to the political risks that often buffet Southeast Asia’s accident-prone economies.

“Globally there’s too much money chasing too few profits,� said the regional equity strategist at Nomura International in Hong Kong.� Risk appetite remains exceedingly high.

Economists are divided as to how long this situation can last, or what might cause its end. But most economists agree that what they call the improper or unjustified pricing of risk is unsustainable, since it helps create asset-price bubbles—and their inevitable and very costly collapse. Some even point to the global boom in housing prices as a manifestation of this problem. Underlying this global liquidity bubble, as economists refer to it, are the divergent savings habits in Asia and the United States and the politically contentious trade gap it has created.

In general, Americans save very little. Asians save a lot, creating an Asian saving glut, what the Federal Reserve chairman, has called. Sometime back the Commerce department has reported that the American Household savings rate had fallen to nearly zero, the lowest since the Depression. Economists differ on the importance of such figures, since United States figures do not account for property or stockholdings.

But few disagree that Asians still tend to set more aside for a rainy day. In Japan and Korea, rates have been falling, but households still manage to save at least 2.5% of their incomes.

On contrast, savings are higher in poorer countries where prospects are less uncertain.

Economists estimate that the average Chinese household saves about one-third of its income. Indian households save about a quarter of their incomes.

The flood of dollars to Asia would under normal circumstances push up the value of Asian currencies, raising the price of Asian goods in dollars and gradually reducing the ability of Americans to keep buying them. But central bankers in Asia, which has long depended on exports for economic development, then need to put those earnings to work and maintain a stable currency.

They do that by buying safe investments like Treasury bonds, and that keeps their currencies from rising while lending Washington the money to finance the deficits and allowing American consumers to continue buying Toyotas and Samsung TV’s and Chinese-made textiles. That is why some countries like China have gone so far as to fix the value of the currency to the United States dollar. Economists say the gusher of global funds became a torrent after 9/11 when the Fed and other central bankers from the Group of 7 industrialized nations steered interest rates lower in response to a growing global recession and fears of deflation.