WWRR Vol.2.015

2019 Global Economic and Market Outlook
Fig 59 The IMF estimated that a deterioration in external factors could drain USD 90bn
from the emerging markets
Source: IMF, Macquarie Macro Strategy.
So, who, among the EMs, might be swimming naked in 2019?
Indeed, 2018 saw two emerging markets with relatively poor country-risk fundamentals – Argentina
and Turkey – suffer the most as that capital flight began to take hold in the late summer of 2018. In
Turkey, political changes played a big role too. Turkey was subject to an election, a change in
cabinet officials, the prospect of sanctions from the US, and significant diplomatic issues. In
Argentina, a bad drought contributed to the problems. But traders quickly noticed that these two
markets had among the worst external metrics (i.e., high external debts and CA deficits).
Should we see a sharp rise in 10-year US yields (and if we were to exclude Turkey and
Argentina, which are likely undergoing important adjustments currently), we would single
out Mexico, Colombia, South Africa, Saudi Arabia, Indonesia, and India as potential
flashpoints. China, Brazil, Russia, Korea, Taiwan, Malaysia, are less exposed, although a
slowdown in China could spark crises elsewhere.
Fig 60 Argentina, Turkey, Chile, Colombia, and Mexico and
Indonesia had largest FX Debt
Fig 61 Saudi Arabia and Argentina saw the largest take-up
of FX debt in 2017-2018
Source: Bank for International Settlements, Macquarie Macro Strategy
Source: Bank for International Settlements, Macquarie Macro Strategy
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