The rapid economic growth of emerging markets has resulted in currency appreciation and massive capital inflows, according to a report released by Moody’s Investors Service.
While emerging economies have been enjoying faster growth and better credit positions than developed countries since the worldwide financial crisis, the recovery has disadvantages for them.
“While there has been a rating convergence between the two groups, a number of emerging nations have seen their currencies appreciate strongly due to high growth and attractive valuations,” said Patrick Esteruelas, vice president of Moody’s and author of the report. ”This has been coupled with very loose monetary conditions in core developed markets, causing massive capital inflows to emerging markets,” added Mr. Esteruelas.
The overall ratings direction for the different regions reflect the clear improvement of Latin America over the past three years, followed by Middle Eastern, African and Asian credits. Meanwhile, Europe’s ratings have been hardly affected by the crisis.
“How governments and central bank authorities have responded to ‘the wall of money’ depends on their policy priorities and their ability to intervene aggressively and effectively in the market,” said Mr. Esteruelas. ”The different responses range from Chile’s hands-off approach to the adoption of targeted capital controls in Brazil and Thailand.”
While the ratings firm does not anticipate any immediate ratings effect from these actions or the developments preceding them, it will observe how nations adjust to the varying international landscape, particularly as they affect fiscal and debt dynamics and economic growth, said Mr Esteruelas.
“We will closely follow the potential effect these actions of the next few months on the speed and volume of capital flows to emerging economies and how emerging nations rise to this challenge,” said Mr. Esteruelas.