Orderly fund flows seen as US ends QE

Economy August 16, 2014 01:00

By Erich Parpart
The Nation

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The Bank of Thailand is not expecting any panic in terms of global fund flows when the US Federal Reserve terminates its quantitative-easing (QE) programme, which is generally predicted to come to an end this year.

The central bank envisages carry trade within developed economies as well as minimal funds flowing from developing to developed countries during the QE tapering period.
Chirathep Senivongs Na Ayudhya, the newly appointed spokesperson of the bank, yesterday said the termination of the QE policy this year had been expected and was already priced in by world markets.
Any resulting capital outflow from developing to developed economies is predicted to be minimal, since there will also be fund flow between the developed markets themselves, while developing countries will benefit from the recovery of major economies such as the US and the European Union (EU), he said.
   “The markets know when the US’s QE will end, therefore the situation will not create market panic like last year, and the Fed has maintained careful communication. Meanwhile, the flowing back of capital from developing markets to developed economies has already been priced in by the markets, therefore there is no worry in terms of large outflows from developing to developed markets once QE is terminated,” he added.
Chirathep said he expected movement of funds between developed economies as well as fund flow from developing to developed countries and that, because of the expected carry trade, there would be loan activities between the developed markets in order to use those funds to invest in places where there are better rates of return. He expects carry trade within the region to be minimal, since the risk-adjusted returns in the region are similar.
Moreover, the trend for adjustment in policy interest rates within the region is more along the lines of its economic needs, which means that the incentive for intra-regional carry trade is lower than for carry trade between developed markets, he explained.
“We will have to wait and see if there will be fund flow between the US and the EU, as well as capital flow between the US and Japan, and we will have to wait and see the fund flow from emerging markets back to the US, which will depend on investors’ selective movement of funds to places where there is a better return on investment,” said the spokesperson.
The expected rise in international trade as a result of global economic recovery will also keep the movement of funds from emerging markets back to developed economies at bay, while the increase in business sentiment and economic recovery in Thailand will limit the amount of capital outflow from the Kingdom, he added.
Foreign investors were net buyers in the Stock Exchange of Thailand to the tune of Bt1.7 billion from August 1 to August 14, with net buying having been on an upward trend since early July.
However, foreign investors have been net sellers over the course of the year, with sells outpacing buys by Bt25.57 billion between January 1 and August 14.