Economists at the Institute of International Finance (IIF) are paid to worry about glitches that disturb the flow of capital into emerging markets. They have fussed about faltering consumer confidence in the United States and the impact of the Iraqi conflict on the global economy. Now, they are stressed about the effect the atypical pneumonia outbreak may have on investments in China.
'It could be a bad thing in the short term,' says Yusuke Horiguchi, deputy managing director and chief economist of the Washington-based institute, which speaks for the world's leading portfolio investors and lenders. 'It's affecting the ability of [business] people to travel. If it keeps spreading, it could affect domestic as well as foreign investments.' He is concerned that all the unknowns associated with this killer bug could make investors sit on their money until the health scare has blown over.
The outbreak has drawn the IIF's concern because China consistently draws a large chunk of all foreign direct investments (FDI) that flow into emerging markets. In January, before the severe acute respiratory syndrome (Sars) outbreak, the institute forecast China's share of FDI flows this year would be about US$52 billion (HK$405.5 billion) or 85 per cent of such flows to emerging Asia. Will that change?: it depends on the virulence of Sars and the transparency of the mainland's approach to it. Investors also expect some damage to tourism and trade in Hong Kong.
The IIF's predictions about slowing investment could be influenced not only by Sars. The institute's latest update, released last week, warned of slowing economic momentum in virtually all major industrialised countries and a diminishing appetite for foreign investments. If China is catching a cold, it could be because other countries are sneezing.
Eduardo Lachica is a writer on Asian affairs based in Washington