Asia's Reserves Rising at Fastest in History as $2 Billion a Day Flows In

Asia has attracted $2 billion of capital inflows daily since April 2009 and its foreign reserves have risen “significantly faster than any time in history,” according to DBS Group Holdings Ltd.

Central bank purchases of debt and currency intervention in developed economies are “flooding markets with liquidity” and the funds are flowing to Asia in anticipation of higher returns, David Carbon, head of economic and currency research at DBS Bank in Singapore, wrote in a report yesterday. The lender is a unit of Southeast Asia’s biggest banking group.

The surge is making Asian assets a “one way bet” for years to come, according to Carbon, who has analyzed Asian and Group of 10 economies for almost two decades. The MSCI Asia Pacific Index of stocks has advanced 8 percent so far this year, twice the advance of the U.S. Standard & Poor’s 500 Index and more than double the Stoxx Europe 600 Index.

“With the U.S., Japan and England now on the verge of another round of quantitative easing, it is little wonder that most strategists” predict further gains in Asian equities, bonds and currencies, Carbon said.

Asia has seen foreign-exchange reserves soar by $926 billion since April 2009, or equivalent to about 13 percent of the region’s gross domestic product, according to DBS estimates. All of the region’s major currencies, except the U.S.-dollar pegged Hong Kong dollar, have strengthened this year even as policy makers across the region sought to stem the gains.

Biggest Reserves

China has accumulated the world’s largest reserves, at $2.45 trillion in June, as the nation resisted calls to let the yuan rise faster. Japan has the second-biggest tally, with $1.05 trillion, and last month its authorities intervened in the foreign-exchange market for the first time in six years, selling more than 2 trillion yen.

The U.S. Federal Reserve’s quantitative-easing programs during the financial crisis included acquiring assets such as mortgages and government securities. The central bank bought $1.7 trillion worth of Treasury and mortgage debt in a program that ended in March. The purchases helped push mortgage rates to historic lows.

“By hook or by crook -- quantitative easing or currency intervention -- the Fed is flooding markets with liquidity, Japan is flooding the markets with liquidity and the U.K. is flooding markets with liquidity,” Carbon said. “A lot of it has gone to Asia, and for good reason. Asia didn’t stop growing just because the U.S. and Japan and Europe did.”

Fed Outlook

Fed Chairman Ben S. Bernanke and his colleagues have signaled they may announce the purchase of more Treasuries as soon as their next policy meeting in November in an effort to boost growth and reduce an unemployment rate stuck near 10 percent for the past year.

The Bank of Japan said this week it will establish a 5 trillion yen ($61 billion) fund to buy government bonds and other assets. Japan last month sold its currency for the first time in six years to restrain the yen and protect exporters. Countries from China to Brazil and South Korea have also taken steps to limit gains in their currencies.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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