"We watch very closely the FDI numbers, and how China is sucking in a very large part of the total available," says Singapore's trade minister, George Yeo.The flows of portfolio capital tell the same story.
A look at a few stocks illustrates the ebb and flow of the portfolios.
He expects measures to slow, but not obstruct, flows of foreign portfolio investment.
He found that, within the total of portfolio flows, equity flows have an even bigger positive effect on GDP than FDI, an admittedly strange result.
Last month, e.g. the IIF EM Portfolio Flows Tracker and Flows Alert reported a further strengthening of portfolio flows to emerging markets after the Brexit vote.
And monthly data from the U.S. Treasury show that there was actually a repatriation of portfolio flows of $21 billion in July.
Also, much of the private capital that flowed into emerging economies was in the form of portfolio investments, and bricks and mortar, rather than debt.
Portfolio managers at Epoch Investment Partners (see "King of Cash") say they had a healthy percentage of portfolio companies taken over in 2006 because theyd bought companies with healthy cash flows.
The preponderance of portfolio investment over FDI has added to financial-sector risk, owing to the greater volatility of portfolio flows.High budget deficits will ensure that the government continues to crowd out borrowers from the corporate sector.
Journal of Portfolio Management, forthcoming.
