The Washington-based institute estimates that seven regional economies will absorb $52 billion in net private capital inflows this year, or slightly better than its S49.4 billion intake in 2000. As in earlier years, China will hog a disproportionately large share of these funds. The figures, however, mask a continuing decline in equity investments, which reflects concerns about the sustainability of economic recovery in some of those markets and outright fear of political instability in others.

The institute, which speaks for the world's leading commercial banks and investment houses, reports that these net equity flows declined to $64.8 billion last year from $72.8 billion in 1999 and may drop further to $61.6 billion this year. "We may be witnessing a phase of reconsolidation before a return to substantial inflows," says William Klein, the institute's chief economist, about the current mood of international investors. "Investors are cautious about the deceleration of (Asian) growth down from the post-crisis years. They may be seeing some additional yellow flags in political developments in Indonesia and the Philippines."

China is the one generally bright spot in the forecast. After coming down a bit from the peak volumes in the late l990s, China's absorption of direct equity investments stabilised at $38 billion last year and could remain at about that level this year, the institute says. Other Asian emerging markets had greater difficulty maintaining their allure to foreign investors. South Korea's net direct equity intake fell to $3 billion last year from $5 billion in 1999 because of its failure to complete the sale of two distressed firms, Daewoo Motor and Hanbo Steel, coupled with an increase in overseas investments by other Korean enterprises.

Direct equity investments to Thailand also dropped to $2.5 billion last year from $5.8 billion in 1999 as the supply of attractive assets declined. The institute expects such investments to remain at "moderate" levels this year.

The contrast between China's fortunes and those of the other Asian emerging markets is even sharper in the stock markets. The institute estimates that Chinese state enterprises raised $7 billion in offshore equity issues in 2000 and expects these firms to soak up a comparable amount this year. South Korea enjoyed a surge in portfolio equity inflows in the first half of 2000 but a subsequent fall-off in these volumes left it with a little less than its 1999 net intake of $12 billion.

Malaysia had a similar experience, getting some attention from foreign portfolio investors after its reinclusion in benchmark indices early in 2000 only to suffer major outflows the rest of the year. The institute estimates that Malaysia had net equity investment outflows of $2.8 billion that year. The region's overall private flows would be much smaller if the fall-off in investments weren't offset by a decline in net repayments to banks. This entry may shrink to as little as $6.3 billion this year from $17.9 billion in 2000, the institute estimates. A decline in net repayments by borrowers also suggests that they may be booking new loans on the strength of their renewed creditworthiness.

Despite political turmoil in parts of the country, the institute expects Indonesia's net repayments to banks to drop to $3 billion this year from $6 billion in 1999. The institute reports that Indonesia's prospects of gradual economic recovery could flush out further sources of private credit down the road.