Australia is poised to benefit from a growing exodus of capital seeking refuge outside emerging markets-, especially China, where heightened financial instability and waning growth has put a cloud over that nation's economic resilience. 
Former Reserve Bank board member Warwick McKibbin said billions of dollars were bound to reach Australia as Chinese sought to pick safe overseas destinations to secure their growing wealth. "A fair chunk will go to the US but if you're diversifying you'd be putting in other countries with good fundamentals, such as Australia and Canada," he said yesterday.
His remarks came as reports suggested emerging economies had suffered their first net capital outflow since at least the Asian finan-cial crisis of 1998. They lost an estimated $US735 billion last year, more than 90 per cent coming from China, according to a new report from the Institute for International Finance. Almost $US200bn left China in the final three months of last year.
While a bout of heightened global volatility has seen the Australian dollar drop by about US4 cents to less than US69c since the new year, Professor McKibbin said the currency was still overvalued based on interest rate differentials and commodity prices - a sign of foreign interest in Australia.
"Based on those factors it should be sitting in the low 60s at least," he said. "We can't tell exact-ly whether its higher value is due to a preference shift for Australian assets globally or people moving money out of China, but the latter effect is definitely there." Chinese citizens are allowed to shift a maximum of $US50,000 out of China per year. Since Aug-ust, their central bank has spent more than $US100bn in foreign exchange reserves trying to slow the depreciation of the yuan.
Ben Jarman, an economist at JP Morgan, echoed Professor McKibbin's remarks. "Given impet-us to get money out of China we'll probably be recipients of capital," he said, playing down concerns Australia's own current account deficit could be a source of capital flight from the country.
Australia's current account deficit rose from $16.7bn to $21.2bn in the third quarter of last year. But as a share of national income it remains at about 3 per cent, far lower than a decade ago thanks to booming commodity prices and volumes.
Elliot Clarke, an economist at Westpac, said Australia continued to see significant foreign direc-t investment, both equity and debt, despite the tapering of the mining boom and anecdotal evidence demand for property from foreigners was subsiding.Much of Australia's current accoun-t is finance through the banking system, which is significantly less exposed to foreign short-term funding than it was in the financial crisis, when the government felt compelled to guarantee Australia's banks' liabilities.