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Wednesday, 5 October 2011

Rush of money leaving Asia; Foreign equity inflows to Asia see dramatic reversal; Taiwan, South Korea hit the worst

Andy Mukherjee, Senior Writer


DURING the 1992 presidential campaign, Mr Ross Perot, the maverick entrepreneur who took on Mr George H.W. Bush and Mr Bill Clinton, coined the term 'the giant sucking sound' to describe the threat of wholesale migration of United States jobs to Mexico under the proposed North American Free Trade Agreement.

Mr Clinton won the election and signed the trade deal. The dire warnings of unemployment came to nought: The 1990s brought the US a bumper crop of jobs. After another unsuccessful stab at the presidency in 1996, Mr Perot retired from the political scene, but his metaphor has stuck.

The accompanying chart shows the giant sucking sound of foreign money leaving six Asian stock markets this year.

The figures are for 'net' foreign equity investments. In other words, sales are subtracted from purchases. A negative number shows the outflow of foreign capital.

The surge in foreign equity inflows into Asia last year has dramatically reversed in the first three quarters of this year. The chart also shows the returns for last year and this year on each country's benchmark index, in US dollar terms.

The markets where overseas investors have kept their faith - most notably, Indonesia and the Philippines - have fallen the least this year.

That is hardly surprising. What is more interesting is that foreigners' love for India, a hugely disappointing market this year, has remained mostly intact.

After attracting US$29 billion (S$38 billion) of equity capital from foreigners last year, the Indian market has seen outflows of less than US$100 million this year.

This is when the Indian economy is slowing, inflation and interest rates are high, liquidity is tight and policymakers in New Delhi appear to be on holiday amid a raft of corruption scandals, large-scale civil protests and persistent rumours of political infighting.

The domestic investors in India, who probably think their government is even more dysfunctional than Italy's, have pushed the index sharply lower this year.

Meanwhile, the most ferocious dumping of equities by foreigners has occurred in South Korea and Taiwan, the two Asian economies that are heavily plugged into the global electronics demand cycle.

As a barometer of sentiment, it makes sense to track what foreigners are up to in Asia. So do pay attention to that giant sucking sound.

andym@sph.com.sg

October 3, 2011

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