Asian financial markets are gripped by panic but solid economic fundamentals will lure investors back to the region once the turmoil subsides, an Asian Development Bank official said Tuesday. "What we are observing in the last two days in the market is really a panic selloff," said the ADB head of regional economic integration, Iwan Azis.
"But we are of the opinion that as the dust settles, capital flows coming to emerging Asia will continue," he said at the launch of the multilateral lender's annual Asia Capital Markets Monitor report in Bangkok. Unlike the US and European economies, many developing Asian nations enjoy manageable levels of public debts and trade surpluses.
Stock markets in the Asia-Pacific region have extended a steep plunge after Standard & Poor's unprecedented sovereign downgrade of the United States on Friday sent shock waves through markets already roiled by Europe's debt crisis. While capital flows to emerging Asia are expected to continue, slowing economic growth in the United States will reduce demand for exports from the region, Azis said.
"The knock-on effects from events in the US and Europe will go far beyond portfolio returns, as a weakening global economy will hurt our exports," he said. The Manila-based ADB said policymakers in emerging Asia needed to develop their tools to deal with volatile capital flows which can lead to "boom and bust cycles". It added: "As a last resort, some specific and temporary capital control measures may be considered."
The ADB said Asian currencies were likely to benefit from an influx of investment over the longer term. A stronger currency reduces the competitiveness of a country's exporters. "Emerging Asian currencies, supported by strong economic fundamentals and high interest rates, are expected to strengthen further in the longer run," it said. The report, which was written before the latest bout of financial turbulence erupted, predicted emerging Asia would post economic growth of 7.9 percent in 2011 and 7.8 percent in 2012, down from 9.2 percent in 2010.
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