Asian emerging markets won't just need to worry about "taper tantrums" in future when it comes to the risk of capital outflows. And the hidden danger has nothing to do with the U.S. Federal Reserve's appetite for monetary tightening.
It has everything to do with demographics. For the first time since 1950, the Asian emerging markets — a group that includes China, Thailand and South Korea — will see their populations age faster than those in the developed world in the coming two decades, according to Goldman Sachs Group Inc.
When workers hit their 50s and 60s, those are peak savings ages — and times when households probably will want to put a portion of their investments abroad, according to Goldman research published this month.
Aging demographic profiles are already contributing to pressure for capital to move out of China, Taiwan, South Korea and Thailand, the banks' analysts wrote. Goldman tallied a net $2 trillion exodus is poised to leave those countries in the next five years.
"Outbound investment of domestic savings would weaken local currencies, softening financial conditions and reducing the need to cut interest rates at the margin, in our view," the Goldman analysts, including Andrew Tilton, the chief economist for the Asia Pacific region in Hong Kong, wrote in the Sept. 22 report.
If Goldman's estimates are correct, an aging Chinese society means pressures are bound to strengthen in an economy already hit by outflows. Of the $2 trillion that the investment bank estimates will flow out of the four emerging markets facing the most severe aging risks, 70 percent will come from China.
The Philippines, with its youthful workforce, stands out as an exception, with "virtually nonexistent" aging-induced outflow pressures on the horizon, Goldman says. In Indonesia and India, outflows due to an aging population will represent less than 1 percent of gross domestic product over the next decade, it said.