Global Themes - Capital Flows: Gradual Rebalancing Rather Than Wholesale Shift

Rising rates in the US are changing global capital flow dynamics. Investors will increasingly differentiate between stronger and weaker economies, rather than simply along the lines of emerging versus developed markets.

  • Among emerging markets, those that have been most reliant on short-term capital, such as Brazil and Turkey, will suffer the most from a tightening in developed market policy rates. However, economies which have benefited from relatively sound reforms and prudent management will be better insulated against rising interest rates.

  • Despite our view that Asia's net savings will diminish over the coming years, we continue to hold a bullish view on most of the region's currencies, with the notable exceptions being the Chinese yuan and the Japanese yen.

  • Risks Of A 1997 Repeat Are Limited
    Global - Cumulative Capital Inflows Since 2005, US$trn
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    Sector: Country Risk

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