Debt vulnerabilities in low-income countries once again are becoming a source of concern, with total external debt and government indebtedness reaching their highest levels since 2005  

Surprisingly,  EM currencies have been quite a mixed bag, and our high frequency tracking of flows shows a mixed rebound in Q1. We believe the underlying issue is that investors are over-positioned, with a positioning overhang after a decade of loose G-3 monetary policy. We upgrade our capital flows projection to EM only modestly, with non-resident flows of $1,260 bn in 2019, after $1,135 bn in 2018.

Markets reassess chances for a Fed rate cut this year amid more optimism on trade talks, Chinese growth; Policy backdrop feeds into asset valuation in emerging markets; China may be taking a break from deleveraging, but non-financial corporate debt is still over 150% of GDP and at over 50% of GDP, household debt in China is well above the EM average—and growing strongly

In the face of popular pressure, President Bouteflika stepped down after 20 years in power, yet much uncertainty remains about the transition to a new government. Algeria’s growth model of hydrocarbon-financed public spending is not feasible with low oil prices, and wide-ranging reforms are needed.

Another credit expansion has been underway during Q1 of this year, and again coincided with rising volatility in the $/TRY exchange rate. Volatile markets necessitate a shift away from credit-driven growth, to a new growth model with an emphasis on structural reforms.

“Only” $3.3 trillion was added to the global debt mountain last year, bringing the total at over $243 trillion.

Portfolio inflows to Emerging Markets were $25 billion in March. Equity and debt inflows reached $8 billion and $18 billion, respectively. Net capital flows rose into positive territory in February.