EM portfolio flows have slumped in recent days amid spillover from Turkey. South Africa and China hit hardest. Other EM Asian countries also saw moderate outflows. In contrast, Brazil, Thailand and Qatar saw net inflows
Continuing 'FRT', the IIF's new podcast on the intersection of Finance, Regulation and Technological innovation, we’re pleased to share our second episode, on the emergence of Open Banking and frameworks for sharing customers’ data.
Last year’s policy mix widened the current account deficit considerably. Financing remained available but became increasingly expensive. The lira is now undershooting our estimate for fair value significantly, but financing needs will remain large despite current account narrowing. In the near term, external assets will help mitigate debt risks. The U.S. is the largest foreign holder of Turkish securities. European banks’ exposures to Turkey are at manageable levels.
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.
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
