Here are a couple of charts courtesy of the International Institute of Finance’s Twitter feed (@IFF).
Despite all the pain we’ve seen since 2011, the outlook for emerging markets is still deteriorating as capital outflows continue.
Not only is China slowing (triggering a fall in already oversupplied commodity markets) & the Fed tightening (driving a rise in the USD & reversal of carry trades); domestic financial, economic, and political conditions are deteriorating fast in a number of countries like Brazil, Malaysia, Russia, Indonesia, Turkey, South Africa, Nigeria, etc.
S&P’s decision yesterday to downgrade Brazil’s government debt to junk with a negative outlook is just the latest in a steady string of bad news with a lot more likely on the way.
As I’ve warned for a couple of years, the 2013 “Taper Tantrum” may prove to be little more than a dress rehearsal for a “Great Unraveling.” It’s a growing risk not just for emerging markets, but also for the developed world & our highly levered, highly interconnected global financial system. [And also an enormous opportunity for patient investors.]
If you’re interested in exploring further, here are a few of my reports & interviews warning of this dynamic over the last year or so…
- VIDEO: “The New Era of Volatile FX Flows” (May 2014): https://www.youtube.com/watch?v=3kxgl5RRa04&feature=youtu.be
- REPORT: “A Scary Story for Emerging Markets” (October 2014): http://www.businessinsider.com/scary-story-for-emerging-markets-2014-10
- REPORT: “On the Verge of a Disaster… or a Miracle” (January 2015): http://www.mauldineconomics.com/frontlinethoughts/why-the-world-needs-the-us-economy-to-struggle
- REPORT: “Here We Go (Down) Again” (July 2015): https://blog.evergreengavekal.com/evergreen-exchange-6/
- VIDEO: “The True Cost of Capital Outflows on Emerging Markets” (September 2015): https://www.youtube.com/watch?v=s68C3qvSIJE