Mr Latter gives an overview from Hong Kong of eight Asian economies Keynote address by Mr Tony Latter, a Deputy Chief Executive of the Hong Kong Monetary Authority, at the Asian Financial Markets Conference held in Hong Kong on 26-27 April 1999. Thank you for inviting me to address your conference today. It is encouraging to see such a wide and distinguished representation here from the financial and commercial communities. Indeed, when I looked down the advance attendance list, I quickly realised that there would be very little which I could tell you about market developments in Hong Kong that you didn’t know already. So, if you will allow me, I should like to spend some of my time standing back a little from specific market topics and looking instead of some of the macroeconomic forces which shape their development. I shall focus my analysis on eight Asian economies [see table]. You will note that the list does not include Japan, Hong Kong or Singapore. That is because they can already be regarded as having relatively mature financial infrastructures and they are largely free of capital controls. Thus, for reasons which will become apparent as I proceed, they do not fit into the story. The table shows the level of physical capital investment within each economy (specifically, gross domestic fixed capital formation as a percentage of gross domestic product) for the ten years to 1997.
Unfortunately I do not think that it makes much sense to try to show specific statistics for such outflows, since in this field data are notoriously unreliable - the more so in instances where controls exist which encourage outflows through what are euphemistically called informal channels. But in general terms the existence of such outflows is strongly implied, if not actually identified, in the overall balance of payments figures. Regarding capital outflows, allow me, for purposes of exposition, to make the following exaggerated distinction. In respect of advanced economies, outflows of direct investment tend to reflect the global workings of comparative advantage, as businesses seek to exploit particular strengths or niches; and portfolio outflows tend to reflect the search by each investor for a balanced international portfolio, within the total of which, however, domestic investments will typically tend to predominate. By contrast, in the less advanced economies there will be less wealth to provide the springboard for a large amount of direct overseas investment, and a large part of the leakage of funds from the country will be through what I have referred to as informal channels - which others may describe as capital flight. The position of any particular country in the spectrum between these two extreme characterisations will depend on, among other things, the stage of economic development that the country has reached, and on the degree of confidence that the population has in the government’s policies and in the financial institutions.