Hot Money Surges In Emerging Markets &Nbsp; Global Economy Is Threatened By New Hijacking.

The new round of quantitative easing, represented by the US Federal Reserve (Fed), is bringing new risks to the emerging markets. Agencies such as the World Bank (WBG) and the International Monetary Fund (IMF) have repeatedly warned that the US and Britain could open new capital gates to new economies. hot money Of large number Influx as well as asset bubble To some extent, this is also a major risk. world economy The largest time bomb has been planted.

Emerging markets into Capital Paradise

Since the major central bank of the world has taken ultra loose monetary policy to boost the economy, hot money is wanton in emerging markets. The attractiveness of developed economies such as Europe and the United States has increased the attractiveness of emerging markets in an economic upswing and become the most direct goal of funds. According to the Institute of International Finance (IIF), this year's inflow into the emerging market will reach US $825 billion, an increase of 30% over the previous year, of which 343 billion US dollars will enter Asia, significantly higher than last year's US $337 billion and US $122 billion in 2008.

Standard Chartered Bank recently reported that in the third quarter of this year, net foreign capital inflows in India, Indonesia, Korea, Philippines, Taiwan, Thailand and Vietnam amounted to US $11 billion 500 million, and such a large scale of capital inflow has pushed up the stock market of emerging Asian economies. Since the beginning of this year, major indexes in South Korea, India and Indonesia have risen by more than 10%. Property prices in emerging economies are also rising. Housing prices in Brazil have risen sharply since 2009, and the average price of commercial housing in the capital Brasilia is 6600 US dollars per square meter.

The World Bank (WBG) pointed out that the increase of capital inflow, domestic liquidity and investor confidence enhanced the price of stocks, real estate and other assets in some economies and led to concerns about the formation of new asset bubbles. East Asian economies should take precautions to ensure that they do not repeat their mistakes in the Asian financial turmoil ten years ago. The previous day, the International Monetary Fund (IMF) also expressed great concern over the large-scale cross-border capital entering Asia. John Lipsky, the first vice-chairman of the group, points out that huge capital flows can also bring about asset price bubbles and financial turmoil as well as opportunities.

All countries are fighting for economic security.

The continued depreciation of the US dollar will involve many currencies in the appreciation vortex, and the influx of hot money will make many emerging economies overwhelmed. Since Japan broke the stillness of 6 years and took the lead in intervening in the foreign exchange market, many countries such as South Korea, India, Brazil, Venezuela and Singapore have joined the ranks. I hope this will stop the inflow of hot money and reduce the negative impact of the appreciation of the currency on Trade and economy.

Brazil, who took the lead in the current round of intervention, launched again to raise the tax rate on foreign exchange purchases of domestic bonds, in order to curb the appreciation of Real in Brazil. Japan not only intervened substantially in the yen exchange rate, but also lowered the benchmark interest rate to near zero in early October; since the end of September, South Korea has carried out a total intervention of about $13 billion to intervene in the Korean won appreciation; and the cabinet of Thailand recently approved a package of measures to curb the excessive appreciation of the Thai baht, and said the government would consider more measures to curb capital inflow.

Even in Latin America, such as Costa Rica, the exchange rate issue is a headache. The new round of quantitative easing adopted by the US has made Costa Rica's currency continue to appreciate, and has appreciated by about 14% since last September. The government and central bank are considering whether to intervene in the foreign exchange market. {page_break}

　　 Greater crisis If the sword is hanging

Although these economies are holding back, their arms are always better than thighs, and interventions are not effective. For these economies, they are facing a series of difficulties. First of all, no hot money can restrain the appreciation of its currency, and exports will be greatly reduced. Second, hot money has pushed up commodity prices and forced emerging economies to suffer inflationary pressures. Third, the "abnormal" boom of capital market and real estate market will bring bubble economy. Once the economic situation in the US, Europe and Japan has improved or monetary policy has changed, the withdrawal of international hot money arbitrage will reverse the flow of capital, which may lead to the bursting of asset bubbles in emerging economies, which will cause a huge impact on its economic stability and even trigger a new round of economic and financial crisis.

How to balance these problems has become the heart of emerging economies. On the one hand, if we can not block the rise of the US dollar, we will face inflation. On the other hand, if we raise interest rates to deal with inflation, we will inevitably attract more hot money inflow due to its interest rate differences with developed countries and increase the difficulty of regulation and control. For emerging economies, the biggest uncertainty is inflation. If inflation rises, some countries will have to use interest rate measures to stabilize price pressures, but the risk of capital flow may also force them to control capital accounts. Once a country implements capital controls, it may impose pressure on other countries. This will lead to a chain reaction and serious consequences.

At the same time, seeking economic growth through intervening exchange rate shows that the world has yet to find a "good recipe" for rapid economic recovery. The consequences of worse intervention in the exchange rate are the result of a global trade war. The developed economies may threaten trade sanctions against other countries through trade protectionism, which is bound to be two wars, and the two recession is inevitable.