Here’s the Asian beauty parade – of the best-performing assets year-to-date - in pictures.
In the currency category:
The Indian rupee, Indonesian government bonds and Vietnamese equities are at the forefront of the rally.
And the equities story:
Asian regulators – fearful that the flows could fuel export-damaging currency appreciation, rising inflation and potential asset bubbles – won’t spoil the party for foreign investors. Yet. That’s according to Capital Economics:
| So far, governments in Asia do not seem unduly worried. This may be due to the fact Asia’s currencies and equity markets are still well below the peak levels seen in July last year, while price-earnings ratios in most countries are below their long-run averages. Moreover, inflation is continuing to fall across most of the region. Finally, despite big increases in property prices in the past couple of years across parts of Asia, only in Hong Kong and Taipei do housing markets appear significantly over-valued. |
Instead, here's what's likely in the policy toolkit:
| The response of most governments is likely to consist of currency appreciation, combined with some use of macro-prudential controls to prevent asset price bubbles, policies to encourage the increased outflow of capital, as well as direct capital controls to discourage speculative investment. |
This rally just feels so 2010. If the Bernanke and Draghi stimuli machines manage to prevent global financial markets from melting then it might be only a matter of time until capital control fears snowball.