The Economist January 15th 2022 59
Finance & economicsCapitalflows
Super savers
T
he countriesof East and South-East
Asia are renowned, even envied, for re-
shaping global supply chains. Less well ap-
preciated is the extent to which they have
redrawn the map of global capital flows.
After a buying spree over the past decade or
so, the region’s ten biggest economies now
hold nearly $28trn in foreign financial as-
sets, more than three times the amount in
2005 and equivalent to a fifth of global as-
sets held by foreigners. Once-staid institu-
tions that are little-known in the West—
from obscure Japanese banks and Taiwan-
ese insurers to South Korean pension
funds—now wield heft in markets for as-
sets ranging from collateralised-loan obli-
gations (clos) in America to high-speed
rail lines in Britain.
East Asia has long been recognised as a
contributor to the global “saving glut”, a
concept popularised by Ben Bernanke,
then a governor at the Federal Reserve, in
- The scale of Asia’s foreign holdings
has only grown since, as the region has be-
come richer and older. The Economist has
looked at figures for the foreign financial
assets of ten East and South-East Asian
economies. We define these as total gross
foreign assets excluding foreign direct in-
vestment by multinationals; our measure
captures investment portfolios and bank
lending, among other things. The com-
bined foreign financial assets of our ten
countries rose from around $8trn in 2005
to nearly $28trn in 2020, increasing the re-
gion’s share in global foreign-held finan-
cial assets by five percentage points (see
chart 1 on next page).
The composition of Asia’s savings
hoard has also changed, strikingly so in
some places. When Mr Bernanke conduct-
ed his analysis, foreign-exchange reserves
held by governments and central banks in
our set of ten economies accounted for
about half of a country’s foreign financial
assets, on average. These had been stock-
piled after the Asian financial crisis of
1997-98 as a bulwark against future
currency collapse, and were held in safe,
liquid assets. Now the average share of re-
serves has fallen to nearer a third. The rest
of the stockpile is made up of portfolio and
other financial flows, which have exploded
as institutional investors in the regionhave hunted for yield overseas.
The shift is drawing the attention of fi-
nancial watchdogs. In December the Bank
for International Settlements (bis), a club
of central banks, concluded that Asian in-
stitutional investors had contributed to
dollar funding stress in March 2020, as co-
vid-19 first began to spread and markets
panicked. Yet much about these financial
interlinkages, and the risks associated
with them, is still poorly understood.
Our sample of countries can be split in-
to three camps. The wealthiest handful—
Hong Kong, Japan and Singapore—hold
significant foreign-exchange reserves, but
their hoards of other financial assets are
between five and eight times larger. Their
holdings are now mature, and slower-
growing by regional standards.
A bigger shift has taken place in South
Korea and Taiwan (see chart 2 on next
page). In 2005 almost half of Taiwan’s for-
eign financial assets, and two-thirds of
South Korea’s, took the form of reserves.
Although reserves have since more than
doubled for both countries, portfolio and
other assets have expanded at a far more
rapid clip. South Korea and Taiwan now
own $1.5trn and $2.1trn in foreign financial
assets, respectively, less than a third of
which is held in reserves. In Malaysia, too,
non-reserve financial assets now outweigh
reserves two-to-one. By contrast, for a
third set of countries, which includes Chi-
na, Indonesia, the Philippines and Thai-
land, reserves still retain a large share.
The growth in foreign financial hold-H ONG KONG
As vast private savings have built up in Asia, financiers in the region now
have a global reach of $28trn
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