Selling of EM debt mostly contained, but market’s resiliency questioned: IIF research

By Rebecca Melvin

New York, May 22 – Recent selling in emerging markets debt has been concentrated for the most part in markets that saw the highest fund inflows after the 2015-2016 China devaluation scare, and it appears unlikely to spread to the asset class as a whole, according to a research note by the Institute of International Finance on Tuesday.

The Argentine peso and Turkish lira have fallen sharply this year but spillover to the broader markets has been limited, affecting mostly those markets that saw concentrated inflows, including Argentina, South Africa, Colombia, Egypt, Mexico and Indonesia, the May 22 note asserts.

The report’s writers, including IIF managing director and chief economist Robin Brooks, found that while inflows into a number of sovereigns relative to their GDP was heavy from 2015 to 2017, the buildup was not as high compared to the three years leading up to the 2013 taper tantrum.

Nevertheless, the resiliency of the overall EM market was questioned given that the sharp drop in the sovereign debt, including Argentina’s, was spurred by a relatively modest increase in U.S. rates, and global funding costs are expected to climb further, according to the global financial institutions association’s note.

“If emerging markets are this vulnerable to what can only be described as a moderate rise in global funding costs, we worry about the underlying resilience of EM,” according to the note.

© 2015 Prospect News.
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