Michael Hutchison
UC Santa Cruz
ADBI Annual Conference December 1-2, 2016
The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian
Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI
does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use.
Terminology used may not necessarily be consistent with ADB official terms.
Portfolio Rebalancing
Risk Structure and Term Structure
The introduction of negative policy rates also coincided with a decrease in longer-
maturity and higher-risk yields. Isolating their impact precisely is not easy, though,
owing to the simultaneous introduction or expansion of central bank asset purchase
programmes.
The effect of negative policy rates on exchange rates was not uniform and in
some cases coincided with bouts of volatility. In Japan, the 2.8% depreciation of
the yen vis--vis the US dollar upon announcement of negative policy rates proved
transitory and was reversed in the following days.
Announcement of
Negative IR Policy
Interest rates
Exchange rates
Capital flows
Continuing declines in government
bond rates
Nov 18 3.52%
Sept 28 2.96%
This data represents the effective yield of the BofA Merrill Lynch Asia Emerging Markets Corporate Plus Index is the
subset of the BofA Merrill Lynch Emerging Markets Corporate Plus Index, which includes only securities issued by countries associated with
the region of Asia, excluding Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan.
Mixed Developments in Exchange Rates.
India
Korea
Japan
Thailand
China
No obvious change in capital flow volatility
Especially in EM Asia
Weekly Net Non-Resident Purchases of EM Stocks
and Bonds ($ billion) (Excludes Turkey and Mexico)
Debt and Equity (combined), weekly data
Total Weekly Portfolio Flows (Debt and Equity)
$ billion
-2
-4
-6
Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16
6
Debt Flows
-2
Equity Flows
-4
-6
Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16
Total Flows
45
25
15
-5
-15
-25
IIF Portfolio Debt Flows Tracker IIF Portfolio Equity Flows Tracker
-35
Jan 14 Jul 14 Jan 15 Jul 15 Jan 16 Jul 16
S
Total Portfolio Investment Inflows to Emerging Economies
$ billion, IIF group of 25 emerging economies, quarterly data
200
Actual (BoP)
150
100
50
0
I
-50
2010 2011 2012 2013 2014 2015 2016
Rise in uncertainty
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-1.0
Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16
1.0
7-Day Moving Average
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.8
-1.0
Jul 15 Oct 15 Jan 16 Apr 16 Jul 16 Oct 16