Global liquidity has room to rise says CrossBorder Capital

CrossBorder Capital, which publishes a monthly Global Liquidity Index, says liquidity has increased yet again, although recent adjustments to index constituents for a greater EM weighting has shaved off some points.

Central banks continue to drive liquidity through monetary policy. However private sector liquidity is also up, on factors such as corporations increasing retained earnings, household savings, and new credit.

“Our aggregate Global Liquidity Index (GLI) hit 59.2 at end-August, down from 60.3 in July. Using the old weights, the GLI would be 70.8,” CrossBorder Capital said.

The company has rebased the index to 2010 data, reducing the importance of developed economies, especially Japan, and boosting emerging and frontier markets.

“For the first time, in fact, the frontier markets register in the Global Index with a single digit percentage weight. Second, we examine the ‘tapering
debate’. The two are not entirely unconnected.”

“The latest (2010-weights) liquidity indexes seem to give us a bit more headroom insofar that they are a few points lower than the previous index based on 2000-weights, at least in aggregate global terms, because currently depressed EM and eurozone liquidity have more importance in the new basket.”

Breakind down liquidity by regions, CrossBorder Capital said that US liquidity
is strong and increasingly being driven by private sector cashflow.


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