I’m trying to understand how the global financial system is likely to evolve from here. This is how the world’s net capital flows ran in 2008:
Countries importing capital: US ($697bn), Spain ($166bn), Italy ($71bn), France ($57bn) Australia ($57bn), Greece (53bn), Turkey ($47bn), and Britain ($46bn).
Countries exporting capital: China ($378bn), Germany ($266bn), Japan ($176bn)…
Asia’s central banks are sitting on $4.1 trillion in loans to other countries…
You can look at capital importers as providing the best combination of low risk (US?) or high return (Australia? Turkey?). You can look at the exporters as facing a combination of high risk (China?) or low return (JP? DE?) environments domestically. Lately investors seem to have fled risk to JPY and USD cash at the expense of returns. Those who want that capital back have to build a better (relative) risk/return case domestically.
The ideal investment prospect would have strong and efficient legal and financial institutions, stable and growing domestic demand, a reliable source of export earnings, and a low level of debt relative to GDP.
Seen any countries like that?