Read more about the article The Metamorphosis of Finance and Capital Flows to Emerging Market Economies

The Metamorphosis of Finance and Capital Flows to Emerging Market Economies

The decade after the Great Financial Crisis of 2007–09 brought significant changes in the volume and composition of capital flows in the global economy. Portfolio investments and other non-bank financial intermediaries are responsible for an increasing share of foreign capital flows, while banking flows have shrunk in relative terms. This paper considers the implications of such a metamorphosis of finance for capital flows to emerging market economies (EMEs). After examining capital flows from the global financial crisis to the 2020-21 pandemic crisis, we analyze the extent to which a normalization of monetary policies in advanced economies may lead to shocks in those flows, as well as why exchange rate fluctuations between the U.S. dollar and other major currencies can affect capital flows to EMEs. Finally, we assess the range of policy instruments that EME policymakers tend to resort to manage risks derived from capital-flow volatility.

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Read more about the article Financial Globalization

Financial Globalization

Financial integration of countries and financial globalization led to an extraordinary rise of foreign assets and liabilities as a share of GDP, followed by stability of total flows since the global financial crisis of 2008-2009. The apparent stability has been marked by an underlying metamorphosis of cross-border finance, with de-banking and rising foreign direct investment and non-banking financial flows. Blind spots and potential instability remain.

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Read more about the article The two sides of capital flows to Brazil

The two sides of capital flows to Brazil

There was a significant inflow of funds in Brazil's external financial account in October and November for investments in both stocks and fixed income instruments. The bulk of the recent inflow has come in a “passive” way, and it did not include considerable volume on the side of “active” investors. For the wave to unfold in the availability of external resources to finance investments in the country, progress and confidence in the domestic fiscal and regulatory agenda will be relevant.

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Read more about the article Channels of transmission of coronavirus to developing economies from abroad
Photo by Edwin Hooper on Unsplash

Channels of transmission of coronavirus to developing economies from abroad

In a previous article, we highlighted how developing economies have faced simultaneous shocks from their external environment, as pandemic and recession curves have unfolded abroad. In addition to financial shocks, there have been declines in remittances, tourism receipts, and commodity prices . The combination of these shocks with the hardships related to flattening domestic infection curves has configured what we have called a ‘perfect storm’ for developing countries, brought by COVID-19. Recent World Bank and United Nations World Tourism Organization reports have given us a view of how serious these shocks have been. We assess here the falls in remittances, tourism receipts, and commodity prices, particularly in oil markets (with accompanying video at bottom).

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Read more about the article Argentina’s half-baked adjustment has not worked

Argentina’s half-baked adjustment has not worked

Argentina’s peso tumbled and stocks plunged after last Sunday’s primary elections. The perception of a likely victory of President Macri’s opponents – Alberto Fernandez, and running mate, Christina Fernandez de Kirchner - has sparked a new shift in investor preferences away from peso assets, pressures on the exchange rate, and hikes on sovereign spreads. Unless fears of a return to policies prevailing before Macri are assuaged, the market rout tends to deepen.

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Read more about the article The Sectors Chinese Investors Are Eyeing In Latin America

The Sectors Chinese Investors Are Eyeing In Latin America

Chinese FDI in LatAm has grown strongly, expanding from almost nothing in 2005 to an estimated US$110 billion or more in 2018, amid a shift away from simply pumping resources into infrastructure, governments and state firms, Brazilian economist Otaviano Canuto wrote in an article for the Americas Quarterly.

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Read more about the article How Chinese Investment in Latin America Is Changing
BUENOS AIRES, ARGENTINA - NOVEMBER 30: President of the People's Republic of China Xi Jinping looks on during the plenary session on the opening day of Argentina G20 Leaders' Summit 2018 at Costa Salguero on November 30, 2018 in Buenos Aires, Argentina. (Photo by Amilcar Orfali/Getty Images)

How Chinese Investment in Latin America Is Changing

  Americas Quarterly - March 12, 2019 China's push for Latin American consumers reflects changes back home. Chinese financing in Latin America is changing. After becoming a major source of…

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Read more about the article The Metamorphosis of Financial Globalisation

The Metamorphosis of Financial Globalisation

After a strong rising tide starting in the 1990s, financial globalisation seems to have reached a plateau since the global financial crisis. However, that apparent stability has taken place along a deep reshaping of cross-border financial flows, featuring de-banking and an increasing weight of non-banking financial cross-border transactions. Sources of potential instability and long-term funding challenges have morphed accordingly

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Read more about the article Tales of Emerging Markets

Tales of Emerging Markets

Emerging market economies (EM) as a special class of financial assets have recently been subject to two competing tales. On the one hand, there is evidence of continued financial deepening and further integration within the global financial system, while the offer of higher yields remains hard to find elsewhere. On the other hand, there are frequent bouts of fear of systemic unwinding of positions triggered by investors “exiting” EM that exhibit signs of weak or unclear macroeconomic foundations.

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Read more about the article Elephants and Macro-Financial Linkages

Elephants and Macro-Financial Linkages

Emerging Markets (EMs) are more likely to suffer shocks, such as commodity-price and terms-of-trade shocks, as well as surges and sudden stops in capital flows.. Furthermore, structural and institutional features typical of most EMs tend to amplify and propagate shocks. Even when asset price-led cycles are not generated within EMs, they tend to be affected the most due to capital flows.

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