(July 22, 2013) — Asian investors are more frightened by the potential end of US quantitative easing than Western investors, according to new data from risk management experts Axioma.
Its Axioma Insight: Quarterly Risk Review paper found reaction to the comments from the US Federal Reserve about its tapering expectations was stronger in Asia than it was in the US.
“With the Fed talking about an end to quantitative easing, a slowing of growth in China, and Japan’s central bank second-guessing its own stimulus plan, the second quarter gave investors plenty to fret about,” said Melissa Brown, senior director of applied research and co-author of the report.
“The result was that most markets retreated in the period, as investors justifiably felt somewhat whipsawed, though the impact on risk largely occurred toward the end of the quarter.”
This was compounded by a steep rise in interbank lending rates in China.
China has been talking openly about freeing its banks from lending constraints, allowing them to become more competitive on an international stage.
Alongside the country’s shadow banking system, which has allowed excessive credit growth outside of the regulated lending markets, on 19 July, Beijing’s leaders moved to scrap the floor on lending rates.
This, Reuters reported, is believed to be a prelude to a much bigger policy move: removing the cap on deposit rates, currently set at 3% for one-year deposits. One to keep an eye on.
Axioma was keen to stress that volatility is still nowhere near the peaks of 2008 or 2011.
“Risk in most markets is still fairly low, relatively speaking,” said Brown.
“In fact, excluding Japan, China and Asia ex-Japan, both medium and short-term risk were actually down several points from year-ago levels, for the benchmarks we track.
“By the same token, the second-quarter upturn in risk is not to be ignored. We cannot help but feel a bit uneasy, and will be listening closely for the sound of sputtering economic engines on the road ahead.”
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