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Capital inflows are a threat to Asia

The return of global risk appetite has helped to push up asset prices across Asia. If we are correct that the crisis in the euro-zone will worsen again later this year, global risk appetite is likely to reverse. However, in the event the euro-zone survives and the period of “risk on” sentiment lasts for longer than we expect, Asia will have little choice but to adapt to the challenge of rapid capital inflows.

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