The Fed's decision to slow the pace of bond purchases is having great impacts on the financial markets around the world. The immediate challenge is the reversal of capital flows out of Asia Pacific markets. Indonesia was the first to raise policy rates by 25 bps, hoping to attract capital. Independent of the Fed action, China is facing its own "credit crunch" at the moment; its interbank rate-SHIBOR shot up to a historical high in early June. Although there was a seasonal short term funding demand primarily due to quarter-end regulatory/reporting requirements for the Chinese banks, it is also believed that the latest liquidity squeeze was partly engineered by the PBOC as a way to respond to the local banks’ aggressive credit expansion in recent months. We are of the view that this is “short term pain” for “long term gain” for China, such that lower growth can be tolerated by the authority because mitigating the potential risk of over-leveraging in the banking sector should be the priority. And, across the sea, Abenomics has brought about the first sign of real estate pricing and export recovery for Japan.
Source : CBRE Global Investors