A Scary Story for Emerging Markets
John Mauldin of Mauldin Economics, put out his latest thoughts regarding the investment environment in the world today and given that the focus was on emerging markets and that Thailand is still one, this article is therefore worth sharing. He has several charts and insights on the debt issues and more importantly the potential impact of capital flows and how economies such as Thailand could be impacted in the coming 12 months, here are some quotes he used and I highly suggest you head to the full article to read more.
“The experience of the [1990s] attests that international investors have considerable resources at their command in the search for high returns. While they are willing to commit capital to any national market in large volume, they are also capable of withdrawing that capital quickly.”
– Carmen & Vincent Reinhart
“Capital flows can turn on a dime, and when they do, they can bring the entire financial infrastructure [of a recipient country] crashing down.”
– Barry Eichengreen
“The spreading financial crisis and devaluation in July 1997 confirmed that even economies with high rates of growth and consistent and open economic policies could be jolted by the sudden withdrawal of foreign investment. Capital inflows could … be too much of a good thing.”
– Miles Kahler
Source: Mauldin Economics
Ben
Many would agree that prospects in developed economies in future years look dismal , cash and bonds have unexciting yields, property in many developed countries still looks expensive- so that leaves developing economies of which are not all the same. Yes they are vunerable in capital flow terms but money will flow to where it gets the best return. Developing countries do have their problems but these pale next to the looming demographic issues in developed countries of decreased spending by boomers and health care/pension costs to governments – who haven’t in the main accumulated sufficient funds ahead of time. So we still favour developing economies as best of worst and on case by case basis. Thailand still has many advantages and still has flexibility.