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Outward portfolio investment and dollar funding in emerging Asia

Author

Listed:
  • Patrick McGuire
  • Ilhyock Shim
  • Hyun Song Shin
  • Vladyslav Sushko

Abstract

The growing heft of institutional investors and asset managers in several Asian economies has fuelled expansion in outward portfolio investment, mainly in US dollar-denominated assets. This investment is predominantly in long-term instruments but is hedged for currency risk mainly through short-term derivatives. The rollover risk in currency hedges exposes these non-bank investors to stress in dollar funding markets, as occurred in March 2020. Some Asian economies have since strengthened regulatory frameworks to address dollar funding-related vulnerabilities of resident institutional investors and asset managers

Suggested Citation

  • Patrick McGuire & Ilhyock Shim & Hyun Song Shin & Vladyslav Sushko, 2021. "Outward portfolio investment and dollar funding in emerging Asia," BIS Quarterly Review, Bank for International Settlements, December.
    • Handle: RePEc:bis:bisqtr:2112d
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    References listed on IDEAS

    as
    1. Stefan Avdjiev & Wenxin Du & Cathérine Koch & Hyun Song Shin, 2019. "The Dollar, Bank Leverage, and Deviations from Covered Interest Parity," American Economic Review: Insights, American Economic Association, vol. 1(2), pages 193-208, September.
    2. Stefan Avdjiev & Egemen Eren & Patrick McGuire, 2020. "Dollar funding costs during the Covid-19 crisis through the lens of the FX swap market," BIS Bulletins 1, Bank for International Settlements.
    3. Tsuyuguchi, Yosuke & Wooldridge, Philip D., 2008. "The evolution of trading activity in Asian foreign exchange markets," Emerging Markets Review, Elsevier, vol. 9(4), pages 231-246, December.
    4. Claudio Borio & Robert Neil McCauley & Patrick McGuire, 2017. "FX swaps and forwards: missing global debt?," BIS Quarterly Review, Bank for International Settlements, September.
    5. Nikhil Patel & Dora Xia, 2019. "Offshore markets drive trading of emerging market currencies," BIS Quarterly Review, Bank for International Settlements, December.
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    Citations

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    Cited by:

    1. Pēteris Kloks & Patrick McGuire & Angelo Ranaldo & Vladyslav Sushko, 2023. "Bank positions in FX swaps: insights from CLS," BIS Quarterly Review, Bank for International Settlements, September.
    2. Jieun Lee, 2023. "Dollar and government bond liquidity: evidence from Korea," BIS Working Papers 1145, Bank for International Settlements.
    3. Julian Caballero & Alexis Maurin & Philip Wooldridge & Dora Xia, 2022. "The internationalisation of EME currency trading," BIS Quarterly Review, Bank for International Settlements, December.
    4. Nariman, Farhad & Heshmati, Almas, 2022. "Are Entrepreneurs Aware of Covered Interest Parity and Dollar Shortage?," IZA Discussion Papers 15216, Institute of Labor Economics (IZA).
    5. Egemen Eren & Philip Wooldridge, 2022. "The role of non-bank financial institutions in cross-border spillovers," BIS Papers, Bank for International Settlements, number 129.
    6. McGuire, Patrick, 2022. "FX swaps and forwards in global dollar debt: “Known knowns” and “known unknowns”," Japan and the World Economy, Elsevier, vol. 64(C).

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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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