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We Have Never Seen Something Like This

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http://www.nytimes.com/2015/10/12/business/dealbook/bankers-grapple-with-how-to-help-emerging-markets.html?smid=tw-share&_r=0

After a week of discussions [in Lima], bankers and policy makers agreed that stemming the rush of investments from emerging markets was one of the most important challenges facing the global economy. But there was little agreement on how to actually do that.

On official panels, in closed-room sessions and over drinks in Lima restaurants, market participants struggled to come to grips with the persistent flows of money escaping emerging-market stocks and bonds in search of safer investment shores.

“We have never seen something like this,”
said Hung Tran, a senior executive at the Institute of International Finance, a trade group for global banks. Mr. Tran said that he was expecting net outflows from emerging markets to be around $800 billion for this year and next — by far the largest amount since institutions began investing in these markets in the late 1980s.

The fear is that these numbers could increase substantially, especially if China’s currency weakens further. That could result in a rolling series of emerging-market crises.

At the root of the debate has been whether the Federal Reserve’s decision last month to hold interest rates near zero has increased investor confidence in emerging markets or hurt it.

Those on the front lines of the outflows of funds from the emerging markets — central bankers in countries like Brazil, Turkey, Malaysia and Mexico — are beginning to say that the Fed’s decision to hold back has actually made their job more difficult. That is because instead of staying put, or making new investments, investors are rushing out all the faster, spooked that the Fed has larger fears about China and other emerging markets.

“I heard time and again this week from governors of emerging-market central banks that it’s not the hike itself that worries them,” said Jacob A. Frenkel, the chairman of J.P. Morgan Chase International and the former head of Israel’s central bank. “It’s how much and when it occurs.”

“Delaying an increase in rates only increases volatility and uncertainty in emerging markets,” said David Fernandez, a currency and bond specialist at Barclays in Singapore.
“Emerging markets will continue to see outflows.”

Just think what is going to happen to the emerging markets if the Fed ever increases interest rates.

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Just think what is going to happen to the emerging markets if the Fed ever increases interest rates.

how about asset prices in emerging markets collapse allowing a subset of developed country investors (let's call them the '0.01%') to buy said assets at firesale prices.

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I heard the amount of Chinese imports (probably mainly raw materials) dropped by 20% in dollar terms, that's quite a drop!

Edited by reddog

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I heard the amount of Chinese imports (probably mainly raw materials) dropped by 20% in dollar terms, that's quite a drop!

Makes the recent bounce in copper, etc, look a bit earlier doesn't it.

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