Private capital looks to have fled Asia to the tune of $160 billion in 2014, leaving the region's central banks scrambling for dollars to add to their reserves. Those economies doing most to reform, like India and Indonesia, seem the best at keeping investors keen.
In 2014, the 10 large Asian economies outside Japan earned a combined surplus of $413 billion from trade, their biggest in five years. Normally, when money comes in, central banks add to their stockpiles of hard-currency assets to prevent exchange rates from rising too fast. Last year, though, they hardly had to lift a finger. At $47 billion, reserve accumulation was the weakest since the 1997 Asian crisis.
Where did the rest go? Currency moves will have wiped away some of it. Say Asian central banks follow the global trend of having three-fifths of their reserves denominated in dollars, a quarter in euros and 8 per cent split between the yen and the pound. A stronger dollar would have erased $205 billion of the region's overall reserves. But even after accounting for that, there is still $161 billion of the trade surplus unaccounted for.
The simple explanation is that the private sector has taken the money elsewhere. And there is one likely culprit: Asia's fading GDP growth. China, which is courting a GDP increase of just 7 per cent this year, the lowest since 1990, accounted for a third of the estimated outflows. South Korea and Singapore are being hit by anaemic world trade. Elsewhere, Asia's chronic weak governance is worsening. Thailand and Malaysia wed shaky leadership with high household debt.
India and Indonesia buck the trend. Investors seem to have given the benefit of the doubt to Prime Minister Narendra Modi and President Joko Widodo, both of whom are using market-friendly policies to coax more output out of relatively young workforces. Falling oil price have removed the need for wasteful energy subsidies and diverted funds into useful infrastructure. The two countries attracted almost $125 billion of private capital between them last year.
The divergence makes sense. Nations that make an honest effort to boost productivity and break away from the pack should still attract funds. But Asia's reform-shy economies may keep getting short shrift.
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)