Amid the global stock market havoc triggered through the rally in the Treasury yields, Bloomberg came out with an analytical piece suggesting the jump in the Asian central banks’ foreign exchange reserves as the key buffer to the region versus the wild moves.
The report notes that the central banks in Asia’s emerging economies added $467.7 billion to their foreign-exchange reserves last year, the most since 2013. “Rising yields have historically triggered currency volatility and driven up borrowing costs in the region,” said the piece further.
The total holdings by emerging Asian economies, excluding Australia and Japan came in as $5.74 trillion versus $5.8 trillion hits in 2014, per the update.
The report quotes Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte in Singapore to highlight the fear of taper tantrums if the Fed exits prematurely from their bond-buying program. “That will be another blow to poorer emerging markets, already lagging the recovery because of the uneven vaccine rollout and impact from lockdowns,” said Mr. Bin further.
Also suggesting further optimism for Asia were the comments from Alex Wolf, Hong Kong-based head of investment strategy Asia at JP Morgan Private Bank. The investment banker said, “Asia looks set to enjoy a cyclical rebound with low real rates to shield against volatility. Bear in mind that insofar as rising yields are a reflection of growth optimism, a lot of that growth should come from Asia in 2021.”
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