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Challenges of Volatile Capital Flows within emerging market economies
Volatile capital flows consistently present challenges for surveillance, policymaking, and investment strategies, especially within ASEAN+3 emerging market economies
Volatile capital flows pose challenges for ASEAN+3 emerging markets. This paper constructs a database of non-resident portfolio flows and develops a framework to assess risks of sudden outflows. The analysis shows that markets with larger non-resident positions are more sensitive to global asset price changes, and positioning affects the size of outflows during stress episodes. Further research is needed to develop a more comprehensive framework.
Challenges of Volatile Capital Flows
Volatile capital flows consistently present challenges for surveillance, policymaking, and investment strategies, especially within ASEAN+3 emerging market economies. Monitoring these capital flows in a timely manner is essential for assessing the vulnerability of equity and debt markets to potential sell-offs by non-resident (NR) investors. Accurate data mapping and risk assessment are vital components in understanding and mitigating the adverse effects of such volatility.
Constructing a High-Frequency Database
This paper aims to construct a high-frequency, timely database of NR portfolio flows in ASEAN+3 economies. By identifying and combining relevant official data series, the paper seeks to create a robust framework for analyzing and assessing risks associated with sudden capital outflows. Through this analysis, it is found that markets with significant NR investor positions are more susceptible to fluctuations in global asset prices and yields.
Need for Further Research
Although preliminary findings indicate that NR investor positioning strongly influences the magnitude of capital outflows during market stress, further and more rigorous research is crucial. This current framework serves as a foundation for a more comprehensive analysis of short-term capital flows. Ongoing research will aim to refine the methodologies and enhance understanding of how to better predict and manage these economic fluctuations effectively.
Source: ASEAN+3 Macroeconomic Research Office
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