Early this year we signaled rising EM risk, especially for Argentina and Turkey. We also flagged growing potential for contagion to the broader EM complex because non-resident flows to EM have been unusually strong in recent years. Our analysis showed that these flows built up in a few countries in particular, so that “concentration risk” could be a conduit for contagion to broader EMs. South Africa, Indonesia, Lebanon, Egypt and Colombia are especially at risk.
Early this year we identified the Lira as significantly overvalued, given last year’s policy mix that widened the current account deficit. However, Lira depreciation had erased that misalignment weeks ago, and it is now significantly undershooting our estimate for fair value. Against this backdrop, we assess balance of payments funding needs, which are sizeable even with a current account deficit that is shrinking.
Fund investors push US portfolio allocations near post-election highs amid signs of economic strength, trade uncertainty; The mood remains cautious on emerging markets, though fund investors are seeking relative winners in a trade war scenario; More signs of risk aversion—bonds over equities, investment grade over high-yield, and USD over local currency EM debt
We are pleased to launch ‘FRT’, the IIF’s new podcast on the intersection of Finance, Regulation and Technological innovation. This podcast will convey the IIF’s insights on emerging trends and the evolving regulatory landscape in digital innovation. To kick things off, our inaugural episode looks at the US Treasury’s report on Nonbank Financials, Fintech, and Innovation, a report published last week that assesses the effectiveness of current FinTech-related regulations.
