Emerging market concerns wane as foreign investors return

SYDNEY - Concerns about an emerging market crisis are waning as foreign portfolio investors begin to invest in these markets again, according to the latest issue of World Risk Developments, published by EFIC, Australia’s Export Finance and Insurance Corporation.

EFIC Chief Economist, Roger Donnelly, says two factors are at play - less concern than before that interest rates will rise quickly in the US and EU; and greater confidence that emerging markets themselves are making adjustments to remain stable.

“The prospect that reformists will shortly be elected to high office in two of the “Fragile Five” economies — Narendra Modi in India and Joko Widodo in Indonesia — is helping galvanise markets,” he says.” “But even in Brazil, South Africa and Turkey, where incumbents are more likely to win elections this year, the markets have been rallying (because) central banks have been increasing interest rates sharply”.’

The return to the bond market by Greece earlier this month was sooner and on better terms than most had expected. But Donnelly warns: “Don't take this to mean that the Government has restored fiscal solvency.” He adds: “Russia looks as if it is heading into recession this year, thanks to the Ukrainian crisis.” www.efic.gov.au (ATI).