Capital Flowing out of Asia

Developing Asian economies are still growing faster than the rest of the world, but capital is flowing to the U.S. and Europe as investor expectations shift.

Asia’s role as the world’s growth engine is waning as economies across the region weaken and investors pull out billions of dollars.

The Indian rupee fell to a record low yesterday, Thailand is in recession, and Indonesia’s widest current-account deficit pushed the rupiah to the lowest level since 2009. Chinese banks’ bad loans are rising, and economists forecast Malaysia will post its second straight quarter of sub-5 percent growth this week.

Flow Reversing

The $3.9 trillion of cash that flowed into emerging markets over the past four years has started to reverse since Chairman Ben S. Bernanke talked about a tapering in quantitative easing this year. The slowdown in Fed bond buying will probably begin next month, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13.

Still Stronger

“Some Asian countries, especially India, have their own significant domestic challenges,” said Jim O’Neill, the former Goldman Sachs Group Inc. economist who coined the term BRIC in 2001 to describe Brazil, Russia, India and China. “But China is slowing primarily to improve its growth model, and at 7 to 7.5 percent annual growth is still delivering $1 trillion nominal GDP. And Japan, still Asia’s No. 2 economy, is looking better than it has done for a very long time.”

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