Emerging market economies, financial risks
2008 08 04 Andy Xie, the First Financial Daily
Sohu blog
subprime mortgage crisis in nearly a year anniversary, the International Monetary Fund (IMF) 7 28 released the latest issue of increasing risks.
IMF report points out that emerging market economies cope better so far the financial turmoil,Bailey UGG boots, but with the extension of the crisis, the external financing environment tightened and inflation pressures, emerging market economies risks can not be ignored.
Bloomberg tracks the 26 developing economies in the currency exchange rate between 2003 and 2007 the average annual appreciation rate of up to 30% in 2007 dropped to 8.2% appreciation in the first and second quarter, only 1.63% more, respectively, and 0.92%, and some emerging market currencies are shown a significant devaluation. entered since 2008, India, South Africa, Korea, Vietnam, Philippines, Indonesia, Thailand, Pakistan, Argentina and other emerging markets depreciation of the currency against the U.S. economy.
Rain Comes from Wind. in the global economic downturn, the economy with high dependence on foreign and economic aggregate of smaller countries are more vulnerable to injury. Vietnam's financial market swings have been issued a clear warning alarms .5 30, Fitch Ratings (Fitch Ratings) will be Vietnam's bond rating from the sovereign funds Although Vietnam's fiscal and balance of payments situation has not got to the point of triggering a serious crisis, the Vietnamese financial market turmoil might be sounded the alarm state.
growing number of market signals seem to point to the same possibility: the world's emerging economies are likely to face increasing economic and financial risks. Currently, the economic and financial risks mainly in what areas? how its manifestations? Vietnam emerging Asian economies outside of the situation? With these questions, Andy Xie, director of Rosetta Stone Advisors.
India in the early stages of the crisis
the situation in different emerging economies. But on the whole, they generally face the problem of inflation. In fact, after several years of rapid monetary expansion, inflationary pressures have been accumulated to a certain extent. However, why is there an emerging world-wide market crisis? It should be said that the role of international oil prices.
In addition,UGG bailey button, many central banks in the beginning of the year will be expected to appreciate their currency. But to enter this year, some emerging market countries such as Thailand, the Philippines, Indonesia and other countries are facing pressure to devalue the currency, which further stimulate inflation. such as data, the Philippines, the inflation rate in May to 9.6%.
the exception of Brazil and a few other emerging economies, almost all developing countries have been hit need to cool domestic demand to control inflation. However, most emerging countries, at least in many emerging countries, asset prices has been overestimated. to control inflation means that asset prices, it is a very painful process. We see a lot of emerging countries The stock market began to shrink. Brazil may be an exception.
The economic and financial risks?
McCormack: Brazil's foreign exchange reserves to maintain a relatively strong public sector finances are improving, the ability to improve defense against external risks, the macroeconomic situation is stable, medium-term growth prospects. The Brazilian Government stick to keeping inflation low and the fiscal surplus commitment to discourage early investors in Brazil can maintain medium-term fiscal sustainability concerns. Therefore, Fitch has long-term debt rating of Brazil raised to BB + from BBB-. In my view , the recent possibility of financial risk in Brazil is low,cheap UGG boots, I am optimistic.
However, some other emerging economies, the situation is less optimistic. For example, India faces a number of problems: high inflation, (arising from the subsidy increase) increasingly serious budget deficit, rising trade deficit hh these problems and make India's economy growing financial risks.
Andy Xie: In fact, the situation in India is already a knot, is unsolvable. India is now the deficit has reached 7% mm taking into account the relatively large amount of India's economy, which is a very large number.
In this case, India is to maintain a price control . It's energy subsidies have more than 5% of GDP, which is barely holding. Because India is mainly through foreign investment to maintain this high subsidies. a lot of international capital into India's stock market and into banks. and then Government, through the issuance of bonds to achieve this subsidy.
India needs to make the deficit to make up a large number of foreign inflows. And in the current worldwide lack of liquidity situation, foreign capital inflow is not easy, and even foreign investment in India has also withdrawn the case. This will lead to decline in rupee currency . and this will make the already serious inflation intensified. In this way, it's inflation rate could soon rise to double digits. its financial constraints may force the government to stop oil subsidies, which push up inflation, may lead not stability, and deter hot money. a lot of hot money withdrawn from the Indian stock market, which will lead to further instability.
Therefore, I think, India is actually already in the early stages of the crisis. India is likely to occur before the end of the year than the current Rs Some of the depreciation of the more serious.
Southeast Asian countries to increase financial risks
generally facing financial risk?
McCormack: financial market turmoil, fiscal deficits, inflation, capital outflows, and so factors that have made Southeast Asian emerging economies, the trend of increasing credit risk.
financial markets shocks largely reflected in the stock market ups and downs. the situation in Vietnam must have been very familiar with Chinese readers. In Thailand, the price level continued to rise because of the impact, the SET index before the stock market has experienced since January this year the most significant decline. In addition, as U.S. economic weakness in the global decline in exports, Thailand's income growth will tend to slow. Thailand's central bank expected export growth this year, up 13.5% level, fell 4.6% last year. the stock market from 5 25 anti-government protests began, has dropped by 7.9%.
br> McCormack: Vietnam and India face similar situations. Vietnam's inflation rate has reached an alarming 25%, is the highest in the region. Vietnam have deficit problems. It should be noted that the crisis is actually in Vietnam overheating of the economy crisis. However, Vietnam's growth makes the situation worse, Vietnam's high growth is the cost of inflation and trade deficit; in China, economic growth accompanied by low inflation and strong exports to China to bring a huge trade surplus.
In fact, the crisis has been going on in Vietnam more than a few months. Two months ago, Vietnam was classified as a negative observation. So, the future of Vietnam's sovereign credit ratings may drop further.
Andy Xie: Vietnam's crisis is essentially a crisis of overheating, caused by its own. Vietnam, the scale of hot money is not well controlled, resulting in pressure on money supply. excess money supply lead to credit expansion, increased loans in turn invest in the stock market and the housing market, a speculation. unrealistically high asset prices make the economic growth rate was overvalued, while the rapid growth of support in the promotion of hot money into the speculation. The result is overheating of the economy accelerated inflation. Since the beginning of 2008 the Vietnamese Government to take measures to control inflation , hot money began to withdraw Vietnam. which led to a weaker exchange rate exacerbated inflation, forcing the government to further tightening. virtuous circle into a vicious cycle.
2008 and 1997: Does history repeat itself?
br> Sean McCormack: It is now the case with 11 years ago, she became very different. First, 11 years ago, the Southeast Asian countries of Thailand, represented a serious shortage in foreign exchange reserves; Now, the Southeast Asian country's foreign exchange Reserves generally higher than the 1997 financial crisis hit much higher. This is probably the most important difference. For example, 27 billion U.S. dollars in Vietnam's official foreign reserves in Vietnam dong currency official protection efforts. This is why the financial risk in Southeast Asia has not yet developed into a the same as the financial crisis of 1997.
second, 11 years ago, Southeast Asian countries but also most of the fixed exchange rate system, the central bank was forced to Southeast Asia, this is not sufficient to show foreign exchange reserves to maintain a particular exchange rate mm can be said that it is a fixed exchange rate led to losses in Southeast Asia; now, this region has become more flexible exchange rate system.
situation?
Sean McCormack: The Asian financial crisis of 1997 compared to Southeast Asian countries is more current financial balance of payments situation is not ideal .1997 is the essence of the financial crisis, foreign debt is too high, the financial institution's assets and liabilities currency and maturity mismatches; now the risk may be the international capital projects through a number of non-debt inflows after the macro-economic deterioration caused by high inflation, large capital outflows that may trigger a series of problems.
stock market bonds have been observed to sign the withdrawal of foreign capital
The data show that the situation has begun to capital outflows. Indonesia, the Philippines, Thailand has been at the vortex of capital outflows. in the stock and bond markets, we observed signs of the withdrawal of capital.
is worth noting that some individual countries . For example, the Philippine external debt accounted for 34% of GDP, .2008 January to March, the Philippine trade deficit up to 20 billion U.S. dollars surplus in 2007 $ 40,000,000 over the same period in 2006, deficit of $ 200,000,000,bailey UGG boots, $ 980,000,000 deficit in 2005 significant deterioration in both the 12-month average monthly trade deficit has reached 6 billion. in the high trade deficit, the Philippines 12 months, the average monthly increase of foreign reserves is still up 45% year on year, while foreign direct investment in 2007 grew only 30%. a sign that in 2007 the influx of hot money may be the Philippines. Once the shift of foreign capital, foreign debt accounted for more than Vietnam, the Philippines could face more severe test.
Andy Xie: In addition, we also consider to support the Philippine economy is a major factor is the labor export labor to bring the capital back, this part of the current situation back into the income of the domestic recession.
?
Andy Xie: Thailand's macroeconomic situation should be fairly stable. Thailand's attractiveness to international capital have never been great, will face the risk is relatively small.
McCormack: But Thailand has a political stability problem. This may have an impact on capital flows.
currency outflows will impact on these countries, the central bank is facing pressure to devalue the currency will further increase. Of course, the situation may not be so bad, because the effect of devaluation on macroeconomic Southeast Asia is not entirely negative, for example, export expansion may be good for economic growth.
, of course, as we observed in South Korea as the central bank's foreign exchange reserves can be enabled to support the currency depreciation. However, this has some risk that the scale of capital outflows would be large enough to lose control . This is a financial risk.
emerging economies in general are facing this problem. At present, the emerging economies as a whole, the capital outflow rate is about $ 2,000,000,000 per week. The country's stock market decline was mainly thanks to the gift of capital outflows.
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