Hot money to rock Asian capital markets

Foreign capital flows into Asia and stronger currencies likely after US sovereign credit rating downgrade, ADB capital market report predicts.

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Download and read for free the ADB report discussed in today's article: Asia Capital Market Monitor 2011 here.

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STOCKS: ADB: Hot money to rock Asian markets by Parista Yuthamanop

Emerging Asian capital markets have strengthened since the turmoil of 2008, but the recent losses of confidence in the United States and Europe presage a greater threat of volatile capital inflows, says the Asian Development Bank

In "Asia Capital Market Monitor 2011" released yesterday, the ADB said increased foreign capital flows underlined strong economic fundamentals in the region, but the majority of the inflows are short-term portfolio investments that could create volatility during a reversal.

The report notes that Asia attracted around 80% of total portfolio capital flows to emerging markets since 2000.

Asia has attracted 60% of foreign direct investment since 2000. But if China is excluded, Asia's share of global FDI declines to 10% since 2000 and 13% in the 1990s.
The trend underscores the need for the regional economy to ensure strong macroeconomic fundamentals.

Improved transparency, regional integration and breadth in the capital markets are imperative if Asia is to ease the impacts of volatility, the report suggested.

Its study covers 11 emerging Asian economies: China, Hong Kong, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taipei, Thailand and Vietnam.

Iwan Azis, head of the office of regional economic integration at the ADB, said the US debt crisis that culminated in S&P's downgrade of its sovereign rating to AA+ on Friday would induce more foreign capital flows in the near future, strengthening regional currencies.

"I don't think there will be a flood of money out of US Treasuries. They will remain a safe haven," Mr Azis said. "It's not the amount of the flows, but the volatility that is the No. 1 enemy. Most of the excessive liquidity we have goes to financial assets.

Promoting cross-border holding of bonds and equities and a savings pool among regional central banks and governments such as the Asian Bond Market Initiative are among recommended integration efforts. 

Mr Azis added that eroding growth prospects in the US and Europe could become an increasing concern for Asian economies.

Cyn-Young Park, the ADB's principal economist, said fears of a global slowdown and escalating problems in the US and Europe had resulted in the credit spreads on emerging Asian bonds spiking since March.

The downgrade by S&P showed thinning trust in US and European policymakers and the market's impatience. The S&P downgrade was also about US politics hampering policy efforts," Ms Park said.

Inhyung Lee, head of capital markets at the Korea Capital Market Institute, noted the heavy sell-off in global markets showed that investors were unsure of how US and Europe can manage their fiscal debt

In the long term, it's inevitable that Asia will attract more capital inflows. The US and EU economies might stagnate for 10 years or more, similar to Japan's lost decades during the 1980s and 1990s," Mr Lee said.

(Source: Bangkok Post, STOCKS: ADB: Hot money to rock Asian markets, 10/08/2011, Parista Yuthamanop, link)

Financial Markets Vocabulary

Asian Development Bank (ADB) - a regional development bank established in 1966 to promote economic and social development in Asian and Pacific countries through loans and technical assistance (See website and Wikipedia and backgrounder) .

hot money - money that is moved quickly between countries in order to make short-term profits from differences in interest rates or in the value of currencies, "these speculative capital flows  ... can move very quickly in and out of markets, potentially leading to market instability" (See Wikipedia)
earthquake rocks Tokyo - the earthquakes shakes Tokyo
hot money rocks markets - the hot money shakes markets (causes instability in markets)

capital - money invested in a business (See glossary)
capital markets  - the group of markets and stock exchanges where companies and governments sell securities (stock shares, bonds, etc) to get the money they need for their operations (See Wikipedia)

turmoil - a situation of great disorder and confusion ความปั่นป่วน

X presages Y -
X gives a warning of something bad happening in the future Y
threat - a danger อันตราย
a loss of confidence presages a greater threat

- being certain, feeling sure about something, trusting and believing in something ความมั่นใจ, ความเชื่อมั่น
loss of confidence - when people do not feel certain about something anymore

- of something that may change suddenly by large amounts (in unexpected and unpredictable ways) ที่ปะทุได้ง่าย ที่เปลี่ยนแปลงได้ง่าย เปลี่ยนแปลงอย่างทันทีทันใดและโดยคาดการณ์ไม่ได้ (changing quickly and unpredictably, the public does not know how to react and plan for the future)
volatile capital inflows - money that flows in and out of a country, suddenly and in large

released - made available to the public

foreign capital flows - investment money coming into the economy (flows) from other countries

economic fundamentals
- 1. the underlying health of a company or economy (that will determine whether it is profitable and survives in the long-run) ที่สำคัญ ที่เป็นตัวกำหนดความมั่นคงของบริษัท; 2. the capacity to do something, basic capabilities that make something possible (that are still there even in bad economic times when incomes decline)
foreign capital flows underlined strong economic fundamentals in the region

majority - most, more than 50 percent ส่วนมาก เสียงส่วนมาก

- taking your money and putting it into projects to make a profit or earn interest (buying stock shares, bonds, real estate)
portfolio investment - securities (stocks, bonds, derivatives) owned by a firm or individual หลักทรัพย์\

- a measure of risk in financial markets, the degree to which asset prices swing up and down (See The Economist and glossary) อัตราความเสี่ยงต่อการลงทุนทางการเงิน changing suddenly and unexpectedly (bad because it makes it difficult to make decisions) ความไม่แน่นอน

Foreign Direct Investment (FDI) - money that foreign companies invest in a country by setting up and running  businesses (and buying real estate, factories, etc) (See Wikipedia)

- not included

- to have or use something at the same time as someone else ใช้ร่วมกัน
X's share of Y - the part of Y that X has, X's part of Y (a group shares Y)

- throughout the world,all over the world, including the whole world  ทั่วโลก ทั้งโลก 
trend - a gradual change or development that produces a particular result ทิศทาง แนวโน้ม

X underscores Y -
X emphasizes Y, X shows the importance of Y

regional economy -
the combined economies of all the countries in a region of the world (such as ASEAN)
ensure - to make certain that something happens or is done รับรอง ให้ความมั่นใจให้การยืนยัน รับรอง

- the study of whole economies of countries
macroeconomic fundamentals - how healthy the economy of a whole country is
ensure strong macroeconomic fundamentals - make sure that the economy of a whole country is healthy 

transparency - an honest way of doing things that allows other people to know exactly what you are doing ความโปร่งใส (everything can be seen by the public, nothing hidden)

- the process of combining with others to create a single unit or system; combine, join, unite, become closely linked with other parts in the system, bringing together many separate pieces to work together as a unified whole, joining different things into one functioning whole การรวมเข้าด้วยกัน, การผสมผสาน

- to make or become less severe, difficult, unpleasant, painful, etc ทำให้ง่าย, บรรเทา
impacts - effects on different people and things
ease impacts - make effects of some event less severe and painful for people

economic integration - arrangements to increase trade and labour exchange between countries by reducing tariffs and other legal barriers between countries, resulting in lower prices, economies of scale and increased market power when many smaller states essentially move towards becoming one country economically, the European Union is the most important and obvious example (See Wikipedia)
regional economic integration - economic integration within one group of bearby countries such as ASEAN

- an amount of money that you owe หนี้
crisis - an urgent, difficult or dangerous situation วิกฤต, วิกฤตการณ์ (a situation that has reached and extremely difficult or dangerous point) 
US debt crisis - US debt ceiling crisis, a financial crisis that started as a debate over increasing the legal limit that the US government can borrow (the debt ceiling): "the United States Department of the Treasury has no authority to issue or incur debt beyond the debt ceiling set by Congress" (See Wikipedia)

X culminated in Y -
a series of events X ended in event Y (example: His 40-year smoking habit culminated in lung cancer.) 

credit rating -
an evaluation of a government or company's credit history and ability to repay its debts (credit worthiness), used by banks in making future loan decisions (See Wikipedia)

- 1. related to a company ("sovereign debt" means the debt of a country) , 2. (of a country) ruling itself เอกราช อำนาจอธิปไตย
sovereign credit rating - the credit rating for a whole country (See Wikipedia)

- to reduce someone or something to a lower rank or position ลดความสำคัญ
credit rating downgrade -
reduce the credit rating of a person, company or country (lower credit worthiness, higher risk borrower)

S&P - a US financial services company famous for credit ratings it issues for companies and whole countries (See Wikipedia)
S&P's downgrade - United States federal government credit-rating downgrade, 2011 (See Wikipedia)
culminated in S&P's downgrade of its sovereign rating to AA+

strengthening regional currencies -
currency appreciation of ASEAN currencie (currencies become more valuable, making exports more expensive and less competitive in global markets)
induce - cause to happen ก่อให้เกิด

flood - a large amount or number of something จำนวนมาก
US Treasuries - US Treasury Bonds, a bond issued by the US government for long periods of time (maturities) (See Wikipedia)

safe haven -
a safe place to keep your money (when everywhere seems like a dangerous place)
excessive - too much; much greater than is usual; too much of something มากเกินปริมาณที่พอดี

- 1. the speed that an asset can be turned into cash (cash is 100% liquid, a savings account a little less, a time deposit a lot less) (when confidence collapses and everyone is selling assets is difficult) 2.  the availability of cash in the economy (through loans) to businesses and consumers (to meet their needs)   สภาพคล่อง
assets - things owned (for example: stocks, bonds, real estate, loans to others, or money) สินทรัพย์ a thing of value with an owner ทรัพย์สิน (See Economist glossary) ทรัพย์สิน

border - the official line separating two areas, regions or countries เขตแดน อาณาเขต
cross-border - between two countries (across the border between two countries)
bonds - borrowing money from many people (bondholders) that pays a fixed interest rate every year and is tradeable on exchanges like stocks (See Wikipedia)  

equities - stock shares in a company that represent partial ownership of the company หุ้น
cross-border holding of bonds and equities - owning bonds and stocks in other countries 

- a central collection or sharing of things or resources by many different people or organizations (example: a car pool, the organizations pooled their resources to solve the problem)
savings pool - putting together savings into one central place
savings pool among regional central banks - a savings pool for the central banks of ASEAN countries

Asian Bond Market Initiative - a program to promote bond markets in Asian banks led by Asia's central banks (See Wikipedia)

efforts - the work done towards achieving some goal; people trying to accomplish something, achieve a goal ความพยายาม

prospects - the possibility that things will happen, especially something good ความเป็นไปได้  the chances of being successful (See glossary)
eroding growth prospects - making high levels of economic growth less likely
concern - a worry ความกังวล

principal - main or most important สำคัญ เป็นหลัก
principal economist - the main or head economist in an organization

global slowdown
- when the economies of all the countries in the world slow down (business is bad, incomes decline both for companies and individuals)

- increasing
escalating problems - increasing problems

- the total amount of loans in an economy เครดิต เงินกู้ทั้งหมด
credit spreads - differences in interest rates

emerge -
1. to appear and become known for the first time, 2. to start to gain influence, power and wealth
emerging markets - countries with rapid growing economies, business and industrialization, the economies of China and India are considered to be the largest (See Wikipedia)
emerging Asian bonds -  the bonds of emerging Asian economies

spiking -
increasing suddenly by a large amount (looks like a "spike")

trust - 1. believing in someone (believing that they will do as promised and not hurt you); 2. when people have confidence in each other (so they can work together effectively) ความเชื่อมั่น
thinning trust - decreasing trust; decreasing trust

- being annoyed and irritated because you have to wait for something to happen

- to make it difficult for someone to do something (X hampers Y in doing Z)
- a set of plans or action agreed on by a government, political party, business, or other group นโยบาย a plan of action to guide decisions and achieveoutcomes (See Wikipedia)
politics hampering policy efforts - politics making it difficult to achieve policy goals (carry out policies, execute policies)

- connected with the government budget and spending, i.e., public money เกี่ยวกับงบประมาณ
inevitable - certain to happen in the future ที่เลี่ยงไม่ได้ unavoidable ซึ่งหลีกเลี่ยงไม่ได้

- to cause someone to be interested in something (and start doing it, using it, buying it, etc) ดึงดูดความสนใจ
attract capital inflows - when investment money starts going into a country

- stop moving forward, changing and progressing
decades - periods of ten years เป็นสิบๆปี

About the author

Writer: Jon Fernquest
Position: Online Writer