Coronavirus crisis is a wake-up call for Asia to better manage its own capital
- The sharp fall in capital flows to emerging Asian economies is particularly ominous, given their dependence on public equity. Yet, much of the savings that flow into non-Asian institutions for management originate within Asia itself
Asian and other emerging markets have recently been haemorrhaging foreign investment at an alarming rate as the economic and financial fallout from the coronavirus crisis wreaks havoc on the global economy and international capital flows.
Yet, many of the Asian economies that are victims of this capital flight are themselves the source of the savings and investment flows now fleeing their shores – an irony or paradox that generally goes little noticed.
How can this be, and why would an Asia which generates huge export and domestic revenues be at risk of being crippled by the drying up of foreign capital inflows and massive capital outflows?
Put simply, it is because the region has not learned how to collect, manage and deploy its own savings effectively. Investment skills are generally not as highly rated among Asians as skills in making “things” (or making money).
Economists have long urged Asian authorities to develop better domestic capital markets and such suasion has worked up to a point. Asian stock market development has come a long way and bond markets have grown impressively. But financial intermediation is still largely in the hands of outsiders.