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Emerging Markets Kablooie risk — likelihood and impact
Publication year - 2014
Publication title -
economic outlook
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.1
H-Index - 8
eISSN - 1468-0319
pISSN - 0140-489X
DOI - 10.1111/1468-0319.12119
Subject(s) - economics , emerging markets , boom , disappointment , monetary economics , recession , asset (computer security) , financial economics , macroeconomics , psychology , social psychology , computer security , environmental engineering , computer science , engineering
The evidence for asset booms in larger emerging markets is camouflaged by the negative price impact of the sustained economic slowdown. Risk compression is far more conspicuous in smaller and lower‐rated EM sovereigns, where economic disappointment has not set in to the same degree. Typically, the riskier the sovereign, the stronger the rally, and reversals in recent weeks barely chip away at the gains of recent years. We therefore pitch our tent in “Camp Nervous”. We attach a 10% probability of major outflows from EM, and 25% to a lesser but still painful downturn. We illustrate the results from a scenario of EM capital outflows run on our global macroeconomic model. All eyes on the Fed: and the risk that that one of the most anticipated tightenings in the history of central banking still manages to throw up some big surprises.