Monday, November 25, 2013

The markets bubs have already put pressure on India and Indonesia, but it s hard to predict what mar


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Top Asia Pacific finance officials will gather in Indonesia on Thursday and Friday shortly after the conclusion of the U.S. Federal Reserve s meeting, at which it is widely expected to start reducing the stimulus bubs that it provides to the world s largest economy.
In an interview on Wednesday, Alan Bollard , executive bubs director of the APEC Secretariat, told The Wall Street Journal that he thought the selloff in emerging markets in anticipation of the Fed s policy change was overdone, and that he didn t see signs of contagion within the 21-member grouping.
Dr. Bollard: I was surprised, bubs and then you look underneath at what s driving that and you see current-account deficits in India and Indonesia. bubs But frankly, I think some of that was a bit overdone Are we seeing early signs of real contagion? I don t think so in APEC. I can t answer for India, that s a different story. Having said that, we have seen very big changes bubs in movements in capital flows [from net inflows into East Asian emerging economies in the first quarter to net outflows in the second quarter]. But we think, looking at it monthly, that that s slowed down.
The tapering effects on exchange rates — based on the discussions we ve had so far — have been quite helpful bubs in terms of pushing down some of the inflated exchange rates around the region. But it s not entirely satisfactory that economies have to deal with these very volatile exchange rates.
Dr. Bollard: From most [APEC finance] ministers point of view, what they re seeing is the time when after the global financial crisis we re starting to see the price of capital go back to more normal [levels]…The real issue is what that means, and I think it ll be a little while before bubs we completely understand, but we know that during this unusual period of the price of capital being so low there has been an increase bubs in credit and in capital flows and in asset prices and in exchange bubs rates in many emerging economies, as well as Australia, New Zealand, [South] Korea.
We ve seen some agents take the opportunity of refinancing at lower rates and tying some of those into the future, but we ll see others bubs that will come under more stress as the cost of capital goes up. In some cases, it s households, in others it s governments, in others it s the business sector, in others it s the banking sector that will notice that more.
The markets bubs have already put pressure on India and Indonesia, but it s hard to predict what market pressures will be. I don t think people see this as particularly problematic — they see it as a move more in the direction of normality, but it ll be a new normal.
We re not hearing increased risks around, say, the Chinese banking bubs or shadow banking sectors. We know there are some risks there, but people aren t talking about those increasing. We re noting in some of the Asean countries growth in household and business sector exposures, but that s against reasonable assets, so we re again not seeing growing bubs risks there, I don t think.
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