MUMBAI (Thomson Financial) – Fitch Ratings said capital inflows to Asia have started slowing down given the heightened risk aversion of global investors and the deteriorating economic fundamentals of the region along with the global economy.
Fitch said although first quarter 2008 data suggests the region continues enjoying strong net FDI inflows and is still receiving cross-border loans from international banks, foreign purchases into local equity markets have already recorded net withdrawals, while international issuances of debt securities seem to have slowed down.
During the first quarter, among capital importers in the region, the major support came from China, India and Singapore, while net FDI inflows remained stable for Mongolia, Thailand, Indonesia and the Philippines.
For capital exporters of Hong Kong, Korea, Malaysia and Taiwan, net FDI outflows have not shown any clear deteriorating signs, the agency said.
On the other hand, foreign funds have clearly reduced exposure to local equity markets, Fitch said, adding the biggest withdrawal took place in Taiwan, due to its relatively big market capitalisation and its heavy bias towards to the electronics sector.
In the first quarter, Asia witnessed net inflows of international inter-bank debt, but Fitch is particularly concerned over India and Korea as both countries’ rapid build-up of net international inter-bank debt has not been matched by their deposits at international banks.
Net international issuances of debt securities dropped significantly in the first quarter and the most severe declines were recorded in Hong Kong and Singapore. They are the region’s financial hubs and thus more sensitive to recent global capital market developments. Significant declines were also recorded in Malaysia, Thailand and India, Fitch added.
SOURCE: Forbes Magazine