Seven EM coun­tries at risk of ex­change-rate cri­sis: No­mura

The Myanmar Times - - International Business -

SEVEN emerg­ing economies at risk of an ex­change-rate cri­sis are Sri Lanka, South Africa, Ar­gentina, Pak­istan, Egypt, Tur­key and Ukraine, ac­cord­ing to a new anal­y­sis by No­mura Hold­ings Inc.

With five of the seven al­ready in a cur­rency cri­sis or a pro­gram run by the In­ter­na­tional Mon­e­tary Fund, that leaves South Africa and Pak­istan as the stand­outs.

At the same time, the eight coun­tries with the low­est risk of a cri­sis are Brazil, Bul­garia, In­done­sia, Kaza­khstan, Peru, Philip­pines, Rus­sia and Thai­land, ac­cord­ing to an­a­lysts in­clud­ing Robert Sub­bara­man, Sin­ga­pore-based head of emerg­ing-mar­kets eco­nom­ics.

“This is an im­por­tant re­sult,” they wrote in a note Mon­day.

“As in­vestors fo­cus more on EM risk it is im­por­tant not to lump all EMs to­gether as one ho­mo­ge­neous group; Damo­cles high­lights a long list of coun­tries with very low risk of full-blown crises.

No­mura’s find­ings are based on an early warning model -- called Damo­cles -- set up to iden­tify ex­change rate crises for 30 emerg­ing economies. The model ex­am­ines a va­ri­ety of fac­tors in­clud­ing for­eign-ex­change re­serves, debt lev­els, in­ter­est rates and im­port cover.

It has pre­dicted two-thirds of the 54 de­vel­op­ing na­tion ex­change-rate crises since 1996, up to 12 months in ad­vance, ac­cord­ing to the an­a­lysts.

“The re­sults we have achieved are en­cour­ag­ing, but given the in­her­ent lim­i­ta­tions of any early warning sys­tem it would be fool­ish to make any ex­ag­ger­ated claims,” they said.

Damo­cles refers to the moral para­ble the Sword of Damo­cles, an al­lu­sion to im­mi­nent and ever-present dan­ger.

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