Thailand is part of the overall emerging markets bubble that some have been warning about in recent years, along with Indonesia, Malaysia and other Southeast Asian countries.
The emerging markets bubble started in 2009, when China launched a bold stimulus-driven economic growth strategy to counter the deleterious effects of the global financial crisis on its economy. China immediately scrambled to construct scores of new cities (many of which are still empty) and ambitious infrastructure projects for the sake of generating economic growth, which sparked a global raw materials boom that benefited commodities exporters such as emerging market nations and Australia.
Global investors soon began to pile into emerging market investments to diversify away from ailing Western nations in wake of the financial crisis.
Zero interest rates and hot money
Near-zero interest rates in the U.S., Europe and Japan, along with the U.S. Federal Reserve’s multi-trillion dollar quantitative easing stimulus programs encouraged $4 trillion worth of speculative capital to flow into emerging market investments since 2009.
Global investors entered carry trades in which they borrowed very cheaply from the U.S. and Japan, and invested the funds in high-yielding emerging market assets, while profiting from the interest rate differential or “spread.”
The sudden influx of “hot money” into emerging market investments helped to inflate a bond bubble, which pushed EM borrowing costs to all-time lows and enabled government-driven infrastructure booms, red-hot credit growth, and property bubbles across the entire emerging world.
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