samchain/econo-pairs-v1 huggingface dataset:
Ravi Menon: Asia – short-term bumps along long-term growth path Remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the opening of Korea’s National Pension Service Office, Singapore, 17 September 2015. *  *  *  Dr Choi Kwang, Chairman and Chief Executive Officer, National Pension Service Ladies and gentlemen, good afternoon I am delighted to join you to celebrate the opening of the Singapore office of Korea’s National Pension Service (NPS). This is an exciting development for Singapore’s asset management industry. •  NPS manages one of the largest pension funds in the world, with KRW 500 trillion of assets under management. The decision by NPS to set up an office here is significant. •  This will be NPS’s first overseas office in Asia and its third in the world after New York and London. In setting up an overseas office in Asia, NPS is affirming the long-term growth prospects for the region. NPS is clearly taking a strategic view of Asia against the backdrop of recent market volatility and moderation in growth. Asia’s recent tantrum: what does it mean? Financial markets, including those in Asia, have experienced a surge in volatility over the past several weeks. •  Equity markets have taken a beating. The stock indices in Emerging Asia are down by an average of 18% since their highs in Q2 this year, with the Chinese stock market correcting the most, by about 40%. 1  •  Currency markets saw sharp movements.

The increasing interest in the region is also motivated by the need at many pension funds and sovereign funds to achieve more diversified investment portfolios. •  These funds are increasingly diversifying their portfolio allocations across geographies and reducing the home bias towards investment in domestic markets. •  They are also diversifying across assets to include more non-traditional assets such as real estate, private equity and infrastructure, which promise sustained and attractive risk-adjusted returns. Emerging Asia offers both asset and geographical diversification. •  Emerging Asia will remain one of the fastest growing regions in the world offering prospects of higher long-term returns, while the depth and liquidity of its asset markets should continue to improve. •  The growth dynamics of Emerging Asian economies is not only different from that of developed Europe and America but also differentiated from one another. •  Emerging Asia offers great potential for the development of alternative investment assets such as infrastructure, for which the region has enormous need. I congratulate NPS on the opening of its Singapore office and wish you continued success in your regional strategy. BIS central bankers’ speeches  3
With net credit creation being largely reliant on bond finance, such a reallocation could generate a sharp deterioration in credit conditions for corporates and the risk may be particularly pronounced for cross-border flows to emerging markets. But what, beyond talking about it, can be done about this risk? Managing the risks in markets will require global co-ordination. The FSB provides the platform for authorities to monitor, analyse and address risks in a timely way. It brings all the relevant bodies together to develop this substantial body of work. Anticipating and managing market risk channels will be core to the future financial reform agenda. This point is relevant to work, currently underway, to develop a framework for identifying globally systemic non-bank non-insurer financial institutions. The fund management industry has become more concentrated, with the top 10 firms now accounting for almost one fifth of assets under management. However, size will not necessarily be the best indicator of systemic importance. It seems plausible that large unlevered funds with little maturity mismatch could pose few systemic risks. At the same time, smaller funds could be systemic if clusters of them conduct similar activities that do pose risks. Those activities include concentrated investments in illiquid assets, the potential for large short-term redemptions, and leverage, whether financial or embedded. As such, there may be merit in this activity-based systemic risk assessment over and above a purelyfirm-focussed approach to systemic designation. Of course, identifying systemic firms is just the first step in managing risks to global stability.

The alternative is the inefficient imposition of multiple regulatory regimes on the same markets and institutions. In this regard, the way is being led in OTC derivatives regulation where progress has been made in establishing that regulators should defer to each other, based on an assessment of whether their regulatory regimes deliver similar outcomes. Urgency is needed in applying that principle if we are to alleviate reductions in market liquidity and FSB members should begin to consider whether and where more widespread adoption of flexible approaches to regulating could be exploited. The FSB is fully committed to supporting continued openness of the global system and to pursuing a new phase of global financial reform. To ready itself for its new roles, it has agreed changes to the structure of its representation, strengthened the inclusiveness of its working procedures and taken steps to increase the transparency of its operations.26 Currently emerging economies are on track, by the middle of the century, to account for the majority of G20 GDP and equity market capitalisation. It is essential that their increasingly important role in the global economy is reflected in the FSB and other international organisations. The changes we have made to increase the number of seats held by emerging markets will allow us to reflect that while maintaining effectiveness in decision making. 26  12  FSB (2014d) reports on the changes to the structure of FSB representation.
But I have to confess that they will not be exciting to those who advocate quick fixes - and in particular to the small minority who believe that something more spectacular, such as depegging or repegging the Hong Kong dollar, is the panacea for all our problems. In the last part of this talk I shall devote some time to this question, which has received some attention in the past few weeks, with the aim of explaining why, in my view, tinkering with the Link is not a solution. Unstable times Let me first, however, offer some comments on the environment that we now find ourselves in. Internationally, prior to the tragic events of September 11th, there were already signs that a global slowdown was either imminent or already in progress, although it was not clear quite how long or how severe the slowdown would be. September 11th, and its aftermath, has not made the answers to these questions any clearer, but it has left no doubt that the deterioration will be sharper, or that the subsequent recovery will take longer. A number of factors in connection with September 11th are at play. Some have immediate effects that are to a certain extent quantifiable: the physical damage caused by the atrocity; the cost - in additional security and insurance, lost revenue, lost jobs - to the airline and tourist industries; the blow to markets worldwide.

And how far, in any case, would we be able to avoid importing US monetary policy even in the absence of the Link? The experience elsewhere in the region does not give ground for much optimism. The third question is how far the Link is fuelling deflation, and how far this is detrimental to our economy. Internal price deflation is indeed a part - and a necessary part - of the process of adjustment imposed on the economy under the Link when there is a fall off in external demand. It is also, incidentally, a feature of our longer-term economic integration with the Mainland of China. It is the counterpart of currency depreciation under a floating regime, except that the adjustments that it forces to take place tend to involve less overshooting, less instability, and more lasting restructuring. Price deflation brings pain to those who see the value of their assets shrink dramatically, and, as we know, there are many in Hong Kong who are, sadly, in this position. But there are many more who have seen their purchasing power increase, as prices for the whole range of goods and services steadily decline. And the effect, equivalent to that of devaluation, on adding to the attraction of Hong Kong as a regional centre, and as a destination for tourists, can only be positive. The concern comes when price deflation, as part of the adjustment process under the Link, turns into the kind of spiralling deflation that inhibits investment and fuels recession.
Untangling exactly what happened at FTX will no doubt take a great deal of time, effort and investigation by the relevant authorities. For anyone interested in the scale of the challenge, I can only recommend a quick read of last week’s bankruptcy filing. But while we will not know in full how it happened for some time, there do appear to be some general themes that are very familiar to those who regulate and supervise conventional financial firms and financial instruments. The first are fundamental issues around how financial institutions should be organised, by which I mean their corporate structure, governance, internal controls and record keeping. Regardless of the financial service activity – be it banking, insurance, exchanges, clearing houses – regulation in the conventional financial sector imposes stringent/substantive requirements. Supervision aims to ensure that these are implemented. These requirements reflect the risks inherent in financial services – risks to the users, risks to other financial firms and risks more broadly to the financial system. Technology in and of itself does not change the need for transparency in corporate structures, governance, audit and systems and controls – for example to protect customers’ funds. In a similar vein, and to prevent conflicts of interest, regulation imposes requirements and  Page 3  constraints on the connections between a financial firm and its affiliates, while also requiring controllers to be fit and proper. In this respect, transparency in corporate structures and the relationships between them is the key foundation.

The tests also evaluate market interconnectedness, including the risk of major counterparty default. To increase public transparency, the Federal Reserve now publishes the overall results of its stress tests. This helps rebuild confidence in the strength of the financial system. The most recent round of stress tests concluded in the first quarter of this year. In my view, the results were encouraging, although not uniformly satisfying. In general, “firms participating in CCAR have more than doubled their Tier 1 common capital since 2009, an increase of $ billion of additional, high-quality capital in the U.S. financial system.”6 This impressive statistic notwithstanding, the Federal Reserve objected to capital plans from five of the 30 participating firms. Four of those five firms submitted plans that raised firm-specific, qualitative concerns. The remaining firm failed to meet a minimum quantitative requirement.7 The consequences of failing to pass a stress test can be severe. If its capital plan has been rejected, the Federal Reserve may, among other things, restrict a bank holding company from paying or increasing dividends on its common stock or increasing any repurchase of its common stock, or both.8 For example, as a result of this year’s CCAR, Citigroup was not permitted to begin a new common stock repurchase program or to increase its quarterly common stock dividend.9 As a companion to improved capital, the Federal Reserve also assesses liquidity – that is, how quickly a bank can convert its assets into cash.
HICP inflation excluding energy, which is a measure of the underlying inflation rate, was 1.0 per cent in July. In the euro area, too, the underlying inflation rate measured in this way has been relatively stable in recent years and declined considerably less than HICP inflation over the past year (see Figure 10). Rest of the world We are forecasting better growth for emerging markets and developing countries outside of the OECD than for the OECD countries. This view is supported by the IMF's most recent update to its World Economic Outlook. The IMF writes that the global economy is beginning to pull out of the recession, but that the stabilisation is uneven between different regions and that the recovery will be sluggish. The IMF, for example, is forecasting strong growth in China and India both this year and next year (see Figure 11). However, the economies in Russia and Brazil are expected to shrink this year and then grow again next year. 4  3  Monetary Policy Report to the Congress, July 21, 2009, Board of Governors of the Federal Reserve System. 4  See the World Economic Outlook update, 8 July, 2009, IMF, http://www.imf.org/external/pubs/ft/weo/2009/update/02/pdf/0709.pdf. BIS Review 98/2009  3  The OECD’s leading economic indicators for June paint a slightly brighter picture and indicate that economic developments have shown a turnaround during the first half of this year in all of the “BRIC” countries: Brazil, Russia, India and China.

Government securities are used by central banks as collateral in managing market liquidity and implementing monetary policy through money market operations. Furthermore, given their low risks, they are used by banks and pension funds as investment instruments. These aspects need to be borne in mind when designing prudential treatment of banks’ sovereign exposures. This is particularly true of emerging and developing countries, as their financial markets are shallow and low-risk equivalents to government securities and central bank papers are hard to find. As I have already mentioned at the beginning of my speech, the CNB hosted the BCG workshop on the impacts of Basel III implementation on emerging markets and smaller economies three years ago. The workshop was efficient and successful, resulting in a memo highlighting the effects of the reforms on these economies for the BCBS and supervisors. I am happy that we are meeting here again to discuss regulation of sovereign exposures and other topical issues related to Basel III regulatory reform. I hope that this workshop will reach similar success. Ladies and gentlemen, thank you and I wish you success in your work. 2/2  BIS central bankers' speeches
Monetary policy conditions Our investment policy differs in a number of ways from that of other large investors, whether they be private sector investors or sovereign wealth funds. This is due to the SNB’s special role. As an independent central bank, the SNB conducts Switzerland’s monetary policy. Our investment policy is always subordinated to monetary policy and can only be understood in the context of this policy, which is currently shaped by the minimum exchange rate of CHF 1.20 against the euro. We introduced the minimum exchange rate in September 2011, and since then we have enforced it consistently. You will recall how, at the time, the debt crisis in the euro area was threatening to deteriorate. The upward pressure on the Swiss franc was immense. For the SNB, it was important to ensure price stability and avert serious damage to the Swiss economy. Seen from the current perspective, this was certainly achieved. Two and a half years after its introduction, the minimum exchange rate remains a key element in the SNB’s monetary policy, and just last week, at our monetary policy assessment, we decided that it should be maintained. Although the recovery of the global economy continued in the fourth quarter of 2013, substantial risks remain. In addition, the conditional inflation forecast for Switzerland has been adjusted downwards in comparison to December. Internationally declining inflation rates and the slightly stronger Swiss franc are delaying the rise of inflation into positive territory.

History of investment policy at the SNB At the SNB, the move towards a sustainable investment policy aimed at optimising risk and return began as early as the 1970s. At that time, the management of foreign exchange reserves focused exclusively on the highest possible level of security and liquidity. Imagine a situation whereby, until 1978, a residual term of only three months was a legal requirement. As a result, foreign exchange reserves consisted primarily of short-term US dollar investments, particularly US treasury bills. This led to considerable concentration risk. At the same time, the potential return was extremely low. Despite narrow statutory provisions and market-related limitations, the SNB tried to make use of the existing room for manoeuvre as regards returns. However, it was not until after the partial revision of the NBA in 1997 that strategic importance was attached to the generation of returns. This became possible because of the abolition of the maximum residual term of one year for foreign exchange reserves, which had applied until then. A further important step towards a sustainable investment policy was the entry into force of the fully revised NBA in 2004. Although, at the time, the changes to investment policy did not attract much public attention, they were very important for the SNB’s investment activities. Within the monetary mandate, investment policy was defined as one of the SNB’s core tasks for the first time. Moreover, most statutory restrictions with regard to investment instruments were removed.
Strong economic activity We can look back on several years of strong economic growth. This has occurred in an environment where price and wage increases have remained comparatively low even though the economic upswing is now in its seventh year, with annual GDP growth averaging around 3%. In recent years, annual demand growth has been in the region of 3 to 4%. A common, though not entirely certain, estimate is that in the long run the Swedish economy can sustain an annual growth rate of 2 to 2.5%. So the economy has been expanding faster than the supply side can cope with in the longer run. This is liable to result in problems with bottlenecks. That in turn can generate growing tensions and accelerating rates of price and wage increases. In the worst case, the result could be a recession, with falling output and rising unemployment. It goes without saying that that must not happen. The Riksbank is required by the Riksdag (Sweden’s parliament) to “maintain price stability”, which involves ensuring that the rate of price increases is kept stable around the 2% target. If we can manage this and take timely measures that prevent imbalances from arising, economic growth will normally follow the long-term trend. As the economy has been expanding above its sustainable rate, the spotlight falls on the amount of unutilised resources. When resource utilisation is liable to generate upward pressure on prices, the economy must wind down from the strong upward trend to a stable rate that is more sustainable.

These developments peaked in the 1920, a period of high economic growth in many countries. Stock-market investors as well as consumers looked forward to rising future income. These expectations were broken, however, when the gains from the new technology, instead of leading to rapidly rising corporate profits, accrued mainly to the national economy in the form of a lower price rise and substantial real wage increases. With the global depression in the 1930s, the move towards further integration was checked. A number of decisions to raise tariffs and prohibit international capital movements exacerbated the economic situation. This made the negative consequences for the global economy even more serious and the international economy landed in a deep depression. Developments in this period demonstrated that protectionism and closed doors are not conducive to higher living standards. After World War Two, some minor steps were therefore taken once more towards increased international cooperation. The deregulation of trade began in earnest in the 1950s and financial deregulation started in the 1970s. 1  BIS Review 99/2000  Important breakthroughs in technology followed in their wake. All this heralds another favourable period of rising living standards in the countries that manage to reap the benefits. Turning now to Sweden, there are a number of parallels with developments here in the 19th century. From a poor agrarian society to a wealthy industrial nation In the early 19th century Sweden was still a poor country. Strategic social institutions were in a shaky state.
The insurance and takaful industry has grown at a healthy annual rate of 10.47% in the 20 years prior to 2016, and the sector now accounts for 6% of the Malaysian financial system assets. The industry is on a strong financial footing, with excess capital above regulatory requirements of RM37.9 billion. Risk management and corporate governance practices have also been significantly strengthened. Insurance penetration, which is the ratio of life insurance policies and family takaful contracts to total population, increased from 25.3% in 1996 to 56% in 2016. Liberalisation in the insurance sector shareholding was also undertaken with a view to further improve the insurance sector. Unfortunately, this is where the good news ends. Despite stronger and better managed insurers, and an increase in foreign insurers’ market share from 60% in 2009 to 76% in 2016, many of the issues raised 30 years ago remain with us today. There are a few areas in particular that I would like to highlight: First, the failure to make insurance and takaful attractive enough to large segments of our population who are still devoid of any form of protection; Second, underinvestment in talent and the continued dependency on group resources to support core functions, and Third, the low commitment to domestic arrangements for reinsurance optimisation. From the perspective of the population that remains underserved, the existing business models 1/5  BIS central bankers' speeches  are essentially broken.

Consequently, during 2005–2008 the NBR did not refrain from making discreet forex market interventions by purchasing considerable amounts of foreign currency so as to preclude the fast overappreciation of the leu, which was likely to cause a dangerous erosion of the Romanian economy’s external competitiveness and to lead to a fall in inflation, yet in an unsustainable manner. At this juncture, I should bring to the fore other arguments in favour of a managed float policy for the Romanian currency. The major reason underlying the NBR’s purchases of foreign  10  BIS Review 5/2010  currency consisted in the fact that the leu strengthened in both nominal and real terms, concurrently with an extremely loose wage policy in 2006 and especially in 2007. During those years, pay rises overtook productivity gains, thus reducing the previously accumulated competitiveness gains and contributing definitely to the worsening of the balance of payments current account. Another argument I would like to point out is of a precautionary nature. As it has been noticed in practice, the end of cycles of synchronous large capital inflows coincide with somewhat abrupt depreciation episodes, which can be avoided provided sufficient reserves are available. The pro-cyclical conduct of fiscal policy that added to the vulnerabilities associated with the widening of the current account deficit during 2004–2008 also underpinned the NBR’s purchases of foreign currency. In principle, fiscal policy may either cushion or magnify the undesired effects of large capital inflows.