End of easy money won't lead to repeat of 1997 crash in Asia

US Federal Reserve chairman Ben Bernanke has sparked significant nervousness in the markets with recent hints of an end to the third round of quantitative easing.

In Asia, which has benefited from the global liquidity resulting from the Fed's policy, there are fears that various asset bubbles may be about to burst in a repeat of the regional financial crisis of 1997.

However, there is no evidence that we are heading for another crash should the Fed stop its programme of buying US$85 billion worth of Treasuries and mortgage bonds every month to keep long-term interest rates low and encourage lending.

One of the best ways to illustrate this is to look at whether capital flows into Asia from foreign investors have been out of the ordinary. Looking at data going back to 1975 on cross-border capital movements in the shape of foreign direct investment, portfolio flows and loans, the pace of foreign investment under quantitative easing has not been that different from before the global financial crisis.

Specifically, Asia's foreign liabilities increased at a steady pace of 5 percentage points of gross domestic product per year from 2004 and continued at the same pace under quantitative easing.

This stands in marked contrast to the lead-up to the Asian financial crisis, when countries' net foreign liabilities increased by 20 percentage points of GDP per year, on average.

The post-Asian crisis build-up in foreign liabilities looks more like a steady trend, reflecting greater financial integration globally, than a cyclical aberration.