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Submitted by: Lanbo Jiang
In the period after the financial crisis, international capital flows shows the characteristics of some new changes, the net direct investment, international capital flows accounted for the proportion gradually decreased from 80% to 50% of the developed countries the risk in the global asset allocation, long-term and short-term international capital flows to emerging again from the developed economies.
Currently, the United States and Europe and Japan cut interest rates sharply after the major developed countries, interest rates remain low, while the emerging economies, interest rates are higher than developed countries. Thus, continuing the recent influx of arbitrage funds in emerging economies, in this context, the 2009 Asia 35 billion U.S. dollars of net capital inflow in 2010, the net inflow of Asian capital will be higher than in 2009; a number of emerging economies to become the object of international hot money race , including the stock and property markets, including the asset bubble was rapidly enlarged. In 2009, in the “BRIC” markets in Bombay Sensex index rose 81%, Sao Paulo, Brazil IBOVESPA index rose 82.7%, the Russian RTS index was up 128.8 percent, while Indonesia, the Philippines, Thailand, Vietnam, Argentina and other emerging markets rose are more than 60%, while the U.S. Dow Jones stock index rose only 18.8%.
With the economic recovery, economic stimulus plan implementation and the influx of outside capital, emerging economies are also rising property prices. Brazil since 2009 house prices began to sharply risen in the capital, Brasilia, Average price was 6,600 U.S. dollars / square meter; Moscow now Average price was 5,320 U.S. dollars / m, New Delhi for the 1400 U.S. dollars / square meter.
In addition, Vietnam and India, two Asian emerging economies also face inflationary pressure. Vietnam’s economic growth rate in 2010 will reach 8.2%, CPI will reach 10.8%, showing the gradual rising trend. India’s wholesale price index for food has nearly the highest in 11 years.
To promote the continued influx of international hot money in emerging economies are the following factors:
First, the easy monetary policy to provide a financing platform for international hot money. As the major Western central banks interest rates close to zero, and cross-border pursuit of profit of capital into the stock market, real estate market, there is the expected appreciation of assets in emerging economies, capital markets, as excess liquidity into the ground.
Second, the emerging economies of industrialization and urbanization led to asset price inflation, international hot money intermediate arbitrage.
Third, the lack of flexibility in emerging economies, exchange rate regime, in response to weak performance of international hot money shocks. Most emerging economies to implement exchange controls, its foreign exchange market does not have a floating exchange rate system, the automatic adjustment mechanism, and therefore can not automatically rise with the exchange rate impact response of international hot money.
Through international capital markets and commodity markets and other channels of international hot money on the implementation of arbitrage activities in emerging economies, emerging economies inevitably generated a lot of adverse effects. It features: First, the inflow of foreign capital will enable the local currency in the short term to face greater pressure to appreciate. In a floating exchange rate countries, the rapid appreciation of the currency would be a great impact on the national economy, in countries with fixed exchange rates, monetary authorities tend to enter the foreign exchange market intervention rate, which also requires a fairly high cost. Second, the hot money out of state would seriously interfere with the implementation of macroeconomic policy, monetary policy, restricting the independence of the central bank to increase the monetary policy more difficult.
In addition, the process of rapid economic growth, many emerging economies, enterprises in New York, London and Hong Kong Stock Exchange. With the intensification of international capital flows, emerging economies to expand the scale of overseas listed companies and international capital markets and interactive effects of increased interest rates in emerging economies, asset price inflation and other factors, enterprises listed overseas will affect stock prices so that the underlying assets held by international investors from arbitrage. In early 2009, before the international hot money on the world economic recovery, re-enter the commodity markets, international hot money through participation in commodity futures markets to benefit. Hot money into the international commodity market, it is easy to push up commodity prices, caused by asset price bubbles, so that emerging economies face imported inflation pressures. Meanwhile, the hot money to enter the capital market and real estate market, so that the asset bubble in the high and further upstream, resulting in structural distortions in investment and consumption. Carry out the international hot money flows reversed, it will damage the economy.
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