Capital Movements
It has been found that stock and bond investment by international investors is on a rapid increase in emerging Asian countries while money is flowing out of South Korea for an extremely low interest rate and from Japan for a negative interest rate and disappointment with Abenomics.
In addition, foreign capital inflow into China soared in the third quarter as a result of the inclusion of renminbi in the SDR basket of the IMF and additional opening of the local capital market.
For the past five months, no less than US$59 billion left the Japanese stock market due to the strong yen as well as the two reasons mentioned above. Abenomics is to stimulate the economy and boost exports by means of a weak yen but this is becoming increasingly difficult for structural reasons. This year, the yen appreciated 16% against the U.S. dollar. The Bank of Japan’s negative interest rate policy is deteriorating the profitability of banks and the central bank is purchasing ETFs worth US$58 billion a year to distort the values of stocks. The Nikkei 225 Index fell 19.5% this year.
In South Korea, the low interest rate is affecting the attractiveness of bond investment and leading to money outflow. A total of US$1.06 billion and US$880 million flowed out of its bond market in the second and third quarters, respectively.
Meanwhile, bond investment by foreign investors soared from US$11.5 billion to US$28.7 billion between the quarters in six emerging countries in Asia (China, India, Indonesia, Malaysia, Thailand and South Korea). Inflow into the Chinese bond market almost tripled to US$20.27 billion during the period, when the amount increased from US$1.3 billion to US$3.29 billion in India. During the past four weeks, those countries’ stock markets posted an inflow of US$2.719 billion.