Natixis Economic Research present a grid to indentify the risks and opportunities in emerging countries based on six key factors:
• Fed tapering: countries maintaining close relations with the United States and/or with liquid markets have benefited most from US liquidity (Latin America, Malaysia, South Korea, Thailand and Poland via bonds). In theory, Fed tapering should lead to less support for their markets, although during episodes of heightened risk aversion, as is the case today, liquidity may prove to be a positive factor.
• Sensitivity to raw materials: a prolonged raw materials price shock would be very unfavorable for Russia, Chile and even the financial stability of countries such as Venezuela, Argentina and Ukraine.
• Dependence on Chinese growth: China’s economic slowdown represents a risk for emerging countries with close trading relations with China, particularly countries in Asia, Latin American and, to a lesser extent, Russia.
• Risk of a sudden stop: the situation is fragile in Ukraine, Venezuela, Turkey and Argentina, whose foreign reserves do not cover the short-term external commitments. The crisis of confidence is not just external since there is a flight from money by residents.
• Trade structure: a diversified industrial base helps to limit external shocks. Asia (excluding Indonesia), the New Member States (NMS), Turkey and Mexico have this advantage.
• Political risks: it is difficult to differentiate between emerging countries based on political factors since all present weaknesses (business environment, corruption, observance of ownership rights, income inequality, etc.). These are indeed basic traits of emerging countries.