20180720-NATIXIS-Capital_outflows_from_emerging_countries_are_bad_news_for_the_global_economy_5页_718kb

Flash Economics Summary

Core Content

This document discusses the impact of capital outflows from emerging countries on the global economy, drawing parallels with the period from 2013 to mid-2016. It highlights that these outflows are driven by several factors, including rising U.S. dollar interest rates, strong U.S. stock market performance, and increased risk aversion due to geopolitical tensions and protectionism. The effects of these outflows are analyzed through various economic indicators and charts.

Main Points

• Capital Outflows from Emerging Markets:

  • Capital is flowing out of emerging countries, which is a recurring phenomenon.
  • This trend has been observed since May 2018 and is attributed to:
    • Rising U.S. dollar interest rates.
    • Strong U.S. stock market growth.
    • Increased risk aversion and geopolitical tensions.

• Effects on Emerging Economies:

  • Capital outflows lead to currency depreciation (Chart 4A).
  • Depreciation results in rising inflation and interest rates (Chart 4B).
  • This weakens stock prices and increases risk premia (Chart 4C).
  • Ultimately, it causes a decline in real GDP, consumption, and investment (Chart 4D and 4E).

• Impact on Global Economy:

  • The weakening of emerging economies affects global trade (Chart 5A) and global GDP growth (Chart 5B).
  • A parallel slowdown in these areas was noted during the 2013–mid-2016 period.

• Conclusion:

  • The instability of capital flows to emerging countries is a major concern for the global economy.
  • Capital is more beneficial when invested in emerging countries rather than returning to OECD countries.
  • A stable and regular flow of capital would be more advantageous for global economic growth.

Key Information

• Capital Flow Trends:

  • Net purchases of equities and bonds by non-residents in emerging countries have been declining.
  • This is reflected in Chart 1A and Chart 1B.

• U.S. Dollar and Stock Market:

  • Rising U.S. Treasury interest rates (Chart 2A) and strong S&P stock market performance (Chart 2B) are key drivers of capital outflows from emerging countries.

• Risk Perception:

  • Increased risk aversion is shown in Chart 3A and Chart 3B via the Natixis risk perception index.

• Economic Indicators:

  • Emerging economies experience currency depreciation, inflation, higher interest rates, lower stock prices, and increased risk premia when capital flows out.
  • These factors lead to a decline in real GDP, consumption, and investment.

• Global Implications:

  • The economic slowdown in emerging countries leads to a parallel slowdown in global trade and global GDP growth.

Disclaimer and Regulatory Information

• The document is intended for professional and qualified investors only.

• It is strictly confidential and should not be disclosed to third parties without consent.

• No personalized investment recommendations are provided.

• No liability is accepted for the accuracy or completeness of the information.

• Natixis is regulated in various jurisdictions, including:

  • France: ACPR and AMF.
  • Germany: ACPR and BaFin.
  • Spain: ACPR and CNMV.
  • Italy: ACPR and CONSOB.
  • Dubai: DFSA.
  • United Kingdom: FCA and PRA.
  • Australia: AFSL (No 317114).
  • Hong Kong: Professional investors only.

• The views expressed in the report reflect the personal opinions of the authors and may differ.

• The report is not a financial analysis and does not meet legal requirements for independent investment research.

• Distribution restrictions apply depending on the jurisdiction.

• The document is not an offer or solicitation for the purchase, sale, or subscription of any financial instrument.

• Further information on specific stocks or instruments may be available via the provided link.

Note: The document includes several charts (not displayed here) that visually support the analysis of capital flows, exchange rates, inflation, stock prices, and GDP trends.