Posts Tagged ‘Egypt’

The markets are not always rational, and in times of backlash can sometimes punish a country which may have been seen as quite strong under different circumstances.

Credit growth has been common across much of the emerging world, but in some countries while credit growth has grown rapidly it remains at modest levels. No one can be sure how markets may react once QE is ended or even reversed, and we cannot be certain whether markets will punish countries, even if total credit levels are modest.

However, some countries are more obviously more vulnerable to markets reacting against emerging market debt than others.

Egypt, which has both high government debt and a prime fiscal deficit, would appear to be susceptible, as might the Ukraine, the Czech Republic and Croatia. Hungary has gone some way to reducing its prime fiscal deficit, but government debt remains high, which means it may prove to be dangerously exposed in the event of higher interest rates.

Another country to watch is Turkey, although it also offers great potential. The IMF predicts that its trade deficit will be around 7.3 per cent of GDP next year. Unemployment is currently 9.4 per cent.

Turkey’s main stock market index – the Borsa Istanbul 100 – surged some 50 per cent over the 12 months to 22 May – an all-time high. In the subsequent two weeks the index lost 10 per cent. It is not clear whether the falls were down to fears over recent protests, doubts over Turkey’s current account, or merely a correction following such rapid rises.

Turkey’s gross external financing requirement (current account deficit plus debts maturing over the next 12 months) is roughly 25 per cent of GDP.

© Investment & Business News 2013