Assessing EM countries' vulnerability to capital flight

EMERGING MARKET DEBT

Sam Finkelstein, head of macro strategies within the global fixed income team at Goldman Sachs Asset Management, assesses emerging market countries' vulnerability to capital outflows.

A distinctive feature of the market turmoil surrounding the Federal Reserve’s expected wind down of quantitative easing next year is the disproportionate impact it is having on emerging markets vesus other asset classes. May saw underperformance across external and local EMD. The JP Morgan external debt index (EMBI Global Diversified in USD) returned -3.57%, while the local debt index (GBI-EM Global Diversified unhedged in USD) returned -6.25%. The sell-off continued into June before EM bonds posted a partial rebound into quarter-end. This is the most significant period of EM debt and cu...