Fri, May 11, 2018 - Page 9 News List

Asia’s message to the world: Open for business, but on our terms

By Andrea Tan and Enda Curran  /  Bloomberg

Asia’s biggest emerging markets are flinging open their doors to court overseas investors, but there is a catch — and it is a big one.

China, India and Malaysia have pledged to open up channels for foreign money to flow through their markets, with policymakers and heads of state publicly proclaiming their wish to be full-fledged members of the global financial system, but the reality often falls short of the rhetoric as national governments insist on maintaining regulatory systems designed to keep capital flows and trading rules under tight control.

Asia’s Tiger economies still remember how unfettered capital flows and free-market capitalism sunk their economies about 20 years ago.

During the 1997 to 1998 Asian Financial Crisis, booming regional economies attracted “hot money” from overseas and borrowed heavily in US dollars. When currencies and stock markets cratered foreign investors headed for the exits, triggering a painful economic slump and banking crisis.

That is why Asian leaders, while welcoming foreign investors, are wary of adopting the Western-style liberalization template.

Singapore-based Pictet Wealth Management chief investment officer of Asia David Gaud said: “1998 is still on everyone’s minds.”

“The Asia model will be a mix of Western rules and state strategy of opening up to help national development and not for total liberalization,” he said.

The reluctance to cede control is creating tension with international investors and their governments, who are keen to profit from some of the world’s fastest-growing economies.

“China and India are hard places to invest in,” London-based Aberdeen Standard Investments global head of equities Devan Kaloo said. “They want to have control over domestic capital leaving.”

However, because the two nations are among the world’s largest and most attractive investment themes, money managers take the trouble to access their markets, said Kaloo, who manages US$820 billion in assets.

The nascent opening comes during a testing period as a US dollar rally and rising US Treasury yields suck capital from emerging markets.

Asia has not been immune, with a foreign exodus from Indonesian stocks seeing about US$651 million leave the market in the past two weeks.

Other nations, including India, are also vulnerable to outflows.

In emerging Asia, overall investor flows, including into stocks and bonds, are at the slowest pace since 2014, Bank of America Merrill Lynch said.

Full access to Chinese financial markets is one of the simmering trade disputes between Washington and Beijing, while India, whose Prime Minister Narendra Modi spoke at Davos in January of “removing the red tape and laying out the red carpet” for business, has drawn criticism from index compiler MSCI Inc for actions that have curtailed offshore trading.

Days after Modi’s speech in Davos, exchanges in his nation alarmed investors by taking the unprecedented step of axing overseas licensing deals on market data and derivatives products, and while India last month boosted the cap on foreign investment in its domestic bonds, its appetite for such inflows contrasts with China, which has steadily expanded access.

Yet even in China, policymakers are only making it easier for overseas funds within strictly controlled systems.

Greater access to the world’s second-largest economy usually happens on closed loops such as the stock-trading links with Hong Kong or restricted qualified foreign investor programs that require regulatory approval.

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