Blaming the Fed
Late in January, just as Ben Bernanke was enjoying his last day in office as chairman of the US Federal Reserve, India’s central bank governor, Raghuram Rajan, criticised the Fed and authorities in Europe and Japan for running selfish economic policies without regard for their impact on emerging markets.
But Rajan is not the first to complain. Brazil’s finance minister, Guido Mantega, coined the phrase ‘currency wars’ in 2010 in reference to the Fed’s quantitative easing programme. US moves to spur domestic economic growth – asset purchases and ultra-low interest rates – saw investors head for the higher returns of emerging economies such as India. Fed tapering noises last year sent this wall of money in the other direction. India, Turkey and Argentina responded by raising rates.
There was little mention of emerging markets in Janet Yellen’s first utterances as Fed chairwoman in her presentation of monetary reports to Congress. What she did say was: “We have been watching closely the recent volatility in global financial markets. Our sense is that at this stage these developments do not pose a substantial risk to the economic outlook of the United States. We will continue to monitor the situation.” That summary will frustrate some EM policymakers.
But Yellen wasn’t the only person to get a promotion. So did Stanley Fisher, who has been nominated as her vice-chairman. Fisher knows emerging markets, thanks to his time as deputy director of the International Monetary Fund in the 1990s; he served as its point man during the 1994 Mexican Tequila crisis, and was also there for the 1997 collapse of the Thai baht and Russia’s default in 1998.If he is confirmed by the US Senate he would probably bring more awareness and concern about emerging markets than anyone else to have held that position previously.
Throughout her Fed career Yellen has been a strong advocate of transparency and communications, and laid much of the intellectual groundwork for the concept of ‘forward guidance’ now in vogue. Authorities running central banks and finance ministries around the world should have a clearer idea of Fed objectives and actions.
If AsianInvestor’s reader poll is anything to go by (see page 56), better forward guidance is exactly what they are looking for. This gives policymakers everywhere the tools to better manage their countries; the wisdom to use those tools is up to them.
Bank Indonesia governor Agus Martowardojo read the tea leaves correctly upon taking the role in May 2013, and his early and steady tightening policies have enabled Indonesia to avoid further instability this year, even as other vulnerable markets have continued to suffer capital outflows. So has Rajan. India and Indonesia have used visibility on Fed tapering to prepare; authorities in Brazil and Turkey have been less agile. The Fed may set the mood music but local central banks still call their own tunes.
On the move
BlackRock names Asia CFO; Aberdeen replaces regional head of fixed income; new Japan chief for UBS Global AM
06 Regulatory Analysis
Private equity seeks clarity on Hong Kong tax treatment
07 Regulatory Roundup
CSRC to restructure; Singapore allows RQFII applications; Australia reforms on advisory rules
08 Data Centre
Asia and global fund flows
10 HKMA headway counters case for sovereign spinout
Buy-side executives say HKMA should separate its excess reserves into a sovereign wealth fund. But recent history and the city’s political culture argue against such a move.
14 Q&A: Melyvn Yeo, CIO of Thirdrock
16 KIC to build research centre; Ben Rudd joins family office; Kuwait fund joins $1.5bn QFII club
18 Private banking in need of evolution
Rising affluence is driving demand for onshore wealth management across Asia.
22 Benz tipped to make changes at StanChart; HSBC appoints retail and wealth head
24 Islamic fund assets leap
Institutional flows drive sharia fund assets up by a quarter, as managers eye new client and product types.
30 Is the bottom set to drop out of US share prices?
34 What Shanghai’s free trade zone means for fund houses
38 The need to differentiate smart beta offerings
40 AIFMD incentive for Hong Kong funds; Barings eyes China debt; Lazard AM opens in Dubai
42 View from the top: Sundeep Sikka, Reliance Capital Asset Management
44 Fear of zombie invasion rises
Undeployed capital among private equity funds has hit record highs, prompting fears of a zombie fund epidemic.
47 Funds of hedge funds emerge leaner post-crisis
48 Q&A: Dennis Nguyen, New Asia Partners
50 Partners Group eyes Asian buyout deals; Oasis said to be eyeing convertible
52 TM’s day of reckoning
US and UK regulators have penalised two transition managers for opaque pricing, sending a message to the industry worldwide.
53 Operations manager: Rory Kennedy, Rogers Investment Advisors
54 Asifma launches asset management group; Mercer replaces Middle East investment head
55 Trader talk: Chris Seabolt, FMR
Following the Leader: Ruling China, from Deng Xiaoping to Xi Jinping, by David Lampton