Seoul, Sep 1 (IANS): Severe economic slowdown in major economies such as the US and Europe could destabilise capital flows in East Asian economies, a senior Asian Development Bank (ADB) official said Thursday.

"Economic growth in emerging East Asia remains robust, but fears of slower growth in mature economies are mounting. A severe slowdown or contraction in mature financial economies could impact on emerging East Asian economies, potentially destabilizing capital inflows," Iwan Azis, head of the ADB's Office of Regional Economic Integration, said at a conference held in central Seoul.

His remarks came amid the recent massive inflow of foreign funds into the South Korean government bond market emerging as one of key potential risks to Asia's No.4 economy.

When economic conditions are good, foreign fund inflow boosts economic growth by offering ample liquidity to the economy, but it could trigger financial market turmoil if foreign investors abruptly flow out of the economy when the global financial crisis happens as seen in the 2008 global crisis, reported Xinhua.

According to the Asia Bond Monitor report released by ADB, foreigners were the largest investor of the South Korean treasury bonds between March 2010 and March 2011. Foreign holdings of the government bonds reached a 10 percent of the total outstanding as of the end of March, up 3 percentage points from a year earlier.

Azis said flush global liquidity and a hunt for higher yields are driving foreign fund flows into Asia amid lower interest rates in major economies, but warned that a severe economic slowdown in advanced nations may destabilise capital inflows by potentially triggering capital outflows from the East Asian economies.