Sanctions on a highly-integrated economy such as Russia are still unprecedented. Unforeseen and unintended consequences could significantly shake up markets. The impact is likely most significant for asset managers and banking institutions. But further consequences for the underlying market infrastructure are possible.

Despite some fiscal consolidation, public finances are fragile. If fully implemented, the fiscal rule would imply a sizable adjustment. Nonetheless, gross public financing needs will likely remain high this year and next. 

The picture of China’s overseas direct investment (ODI) is quite different from many people’s impressions.  

The debate on U.S. sanctions on sovereign debt is expected to continue in '20. Low macroeconomic vulnerabilities will likely limit the impact on Russia. U.S. investors would lose out given investments in Russian domestic debt. Unintended consequences could also significantly shake up global markets.

Large amortization payments will leave Turkey exposed to rollover risk in 2020. The composition of amortization payments should alleviate some of the concerns. Net foreign borrowing will continue to be an important determinant of growth. Residents could withdraw from assets abroad if they fail to roll over maturing debt.

South Africa and Mexico face significant fiscal risks from struggling SOEs. Both Eskom and Pemex are receiving sizable support from governments. Such risks prompt SARB and BANXICO to keep real rates above EM peers. A downgrade of sovereign credit ratings could lead to large portfolio outflows. However, risks to debt sustainability are higher in South Africa than Mexico.

Argentina introduced capital controls last summer. We draw lessons from the 2011-15 controls episode. Capital flight fell and the central bank bought FX, but reserves were spent absent nonresident inflows. Capital controls will only buy temporary respite.