EM liquidity continues to be weak – CrossBorder Capital

Data from CrossBorder Capital’s June 2013 Global Liquidity Index points to continued weak flows into emerging markets of just $5bn, compared to estimates that central banks contributed $161bn and domestic institutions $100bn.

CrossBroder Capital said that the latest key stories around liquidity – a rebound in private sector liquidity; policy change in Japan and BoJ liquidity; and the slide in emerging market private sector liquidity – taken together pointed to uneven global economic recovery.

“Near-term risks focus on still weaker EM currencies and fragile eurozone banks,” it said.

“Low eurozone liquidity largely results from tight ECB policies and net foreign outflows. This could trigger future funding problems, as it has previously. Worryingly, our data show that problems seem to be spreading to the core economies.”

However, CrossBorder Capital also suggests that given the level and pace of global liquidity, it suggests that there is increasing speculation, which will lead to more unpredictability around market volatility.

This unpredictability in liquidity driven events is compounded by the uneven distribution of liquidity geographically and between private and central bank sources, it said.

“Some portfolio protection may be prudent.”


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