The financial markets in emerging economies are having a deserted look after large exodus by foreign investors both from the equity and debt markets. Their return in the coming months will not be substantial. Volatile investors see two adverse trends in EMEs- currency instability and loss of growth momentum. Currency crisis and steep depreciation often discourages incoming investment. Besides, many EMEs have lost the credibility of future growth prospects.
Foreign investors fear that the currencies are yet to be stabilized. With falling currencies, portfolio investors may loss heavily.
Investor’s will be more averse towards current account deficit countries. These countries are yet to put their house in order. In the coming weeks, with prospects of US intervention in Syria, emerging financial markets may come under more strain.
Flagship emerging markets like India will be launching long term measures to correct the current problems. Sound reforms which make a competitive manufacturing sector is the main option in front of the country right now.
Brazil and Turkey which rely heavily on deposits by foreigners have increased their interest rates to retain foreign capital. The central bank of Brazil has already announced $ 60 billion currency support programme to be completed by December this year.
In India, the major crisis management intervention was made by the RBI in the form a dollar lending to PSU oil companies worth $300-500 million daily. Finance Ministers ten point proramme was received by the market with utter disregard.
In the last couple of weeks, India’s leadership was highly engaged with politically rewarding efforts like Food Security Bill and Land Acquisition Act. Now, they are freed and may come out with some less politically appealing but sound economic reform measures in the coming weeks.