A rising tide of capital controls
(James Saft is a Reuters columnist. The opinions expressed are his own)
Easy money in the United States, a falling dollar and growing flows of funds seeking better returns in emerging markets are touching off a new round of capital controls in hot emerging markets, a trend that could accelerate and will at the very least increase market volatility.
It shouldn’t be a surprise, really; loose money in the developed world is helping to spur investment into emerging markets, driving currencies up and making local exports less competitive for countries which, unlike China, aren’t hitching a free ride as the dollar declines.
Inflation may be a threat for many of these, but with the global economy still struggling, it certainly won’t feel that way to policy makers.
Russia on Wednesday joined the list of countries eyeing new measures to stem currency speculation and appreciation. Moscow was careful to say it would not impose actual capital controls, which seek to regulate flows of funds into or out of an economy, but the measures they are considering would have exactly that effect, making it tougher or more expensive for money borrowed abroad to be brought into Russia.
Kazakhstan, which has been intervening actively to slow the ascent of its tenge currency, has introduced legislation allowing capital controls, but so far has not used them.
Indonesia said this week it will consider curbs on foreign holdings of short-term official debt, sending its rupiah into a brief swoon until central banker Hartadi Sarwono damped things down by saying currency moves based on such flows were so far manageable.
Time for China to act on foreign listings
– Wei Gu is a Reuters columnist. The opinions expressed are her own –
China has talked about plans to allow foreign companies to float on its domestic stock markets for at least a decade, but that’s all there has been: talk.
Now would be a good time to convert some of that talk into action. Beijing has been struggling with its own investment strategies: the state gets feeble returns on the U.S. Treasury bonds it owns, and its equity stakes in foreign financial firms are well under water.
So why not diversify by allowing 1.3 billion Chinese citizens have a go rather than a few bureaucrats working for China’s sovereign fund? The many might even do better than the few. And it would give Chinese savers a chance to buy global blue chips at credit-crunch prices.
The idea of opening up China’s equity markets to foreigners may seem fanciful, but it dovetails with another big national objective. China wants to build Shanghai into a global financial centre by 2020, but that requires a deeper and internationalised equity market. Only when that is in place will foreign money descend on Shanghai, together with an army of bankers, lawyers and accountants.
The market capitalisation of Shanghai is now the world’s fourth largest, but it is dominated by state-owned firms with only a handful of foreign joint ventures and a few private companies.
The market is off-limits even to many of China’s own best and biggest companies, such as the world’s largest telecom operator China Mobile and China’s top offshore oil and gas producer CNOOC.
China exchanges are for yuan-denominated listings of
public enterprises. But it is not certain if foreign
firms opting for such listing would be able to convert
Renminbi outside China, unless yuan is a free and
reserve currency. At status quo, opening up foreign
listings largely benefits foreign companies that have
direct biz in China or Hong Kong. It is absurd for say
AMR to raise yuan in Shanghai and bring yuan home to
finance rail transport.
Time for China’s banks to think local
– Wei Gu is a Reuters columnist. The opinions expressed are her own –
When foreign strategic investors were invited to take stakes in Chinese banks, the word “strategic” had a clear meaning for their hosts.
The banks were supposed to stay in for the long term, and that’s why they had the chance to buy big stakes at bargain prices. Yet many have behaved like “foreign speculative investors”, as they are now called in China — they took the cheap deal and then flipped the shares for a fast profit.
Chinese banks looked to the West for access to capital, risk management and exposure to fast growing and sexy new products. But now China no longer needs as much foreign investment.
Meanwhile some of the fancy new financial products China once craved have turned out to be toxic, and the risk management skills of the so-called teachers from the West look tarnished in the wake of the credit crunch.
The recent exodus by cash-strapped Western banks such as RBS, BofA, and UBS, all of whom sold out of Chinese banks for fat profits, has left behind a sour taste.
LAST OF THE BIG 5
Fascinating. I think it will be crucial for China’s banks to start looking within the country to help formulate sophisticated banking concepts that fit the Chinese market, rather than continuing to look elsewhere. Obviously, as you indicate, not everything in the global banking industry is “one size fits all.”
The more critical question is: when will the asset bubble in emerging markets burst? Will the world go into double-dip recession if the bubble burst?The moment the Greenback appreciates, and shows signs of sustained appreciation, the money will flow out of emerging markets, causing havoc for many small countries.