I described capital flows to emerging Asia earlier, largely in terms of cyclical factors relating to monetary policy. But there is a larger secular phenomenon underpinning these flows to Asia – the structural rebalancing of investment portfolios towards emerging economies in general, and Asia in particular. Given the size of developing Asia, there is not enough portfolio investment in Asia and not enough portfolio investment by Asia. There is scope for both to increase – dramatically. 31. First, global investors will invest more in Asia. Advanced economies represent only half of world GDP but three-quarters of global market capitalisation. A reallocation of just 5% of advanced economy equity portfolios to emerging economies translates into a potential flow of $ trillion. 32. You know the story well – strong economic growth, sound fundamentals, and favourable demographics will support the valuations of Asian assets and draw a growing tide of institutional investor interest from the rest of the world. At the same time, rapid urbanisation will mean large infrastructure needs in Asia – the ADB has estimated that Asia needs about $ trillion through 2020 to upgrade its infrastructure. This financing need cannot be met by public funds alone. Infrastructure funds are set to play an increasingly important role in the asset management landscape in Asia. 33. Second, Asian investors will invest more, both in Asia and globally.
Ravi Menon: Forces driving the global economic outlook Keynote address by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the Investment Management Association of Singapore 13th Annual Conference, Singapore, 14 March 2012. *  *  *  Mr Lester Gray, Chairman of IMAS, Distinguished guests, ladies and gentlemen, good morning. A. Fragile equilibrium  1. The world economy appears to have found a fragile equilibrium. There are weaknesses in key economies balanced by pockets of growth elsewhere. More notably, the worst fears of the last three months of 2011 have not materialised. The last six weeks in particular have shown signs that the global economy has avoided imminent disaster. 2. In the Eurozone, the threat of a major crisis has receded, at least for now.   A deal has been struck on the second Greek bailout package, allaying fears of a messy default situation.   The ECB’s two tranches of Long-Term Refinancing Operation, or LTRO, amounting to more than 1 trillion Euros, has provided Eurozone banks much needed liquidity to meet their funding needs.   The LTRO has also helped to compress sovereign yields significantly, particularly at the front end of the yield curve. 3. In the United States, the risk of a double dip recession has waned.   Employment data have surprised on the upside.   New orders for both manufacturing and non-manufacturing continue to indicate higher levels of activity for the next six months. 4.