In London on January 23, Reuters reported that JPMorgan issued a warning regarding the potential impact of President Donald Trump's 'America First' policies on emerging markets, suggesting a possible sudden halt in capital flows. The bank expressed concerns over the $19 billion in "net capital outflows" from developing countries, excluding China, in the last quarter, with an additional $10 billion expected to leave in Q1. JPMorgan noted that such a trend, by academic standards, indicates that emerging markets (excluding China) are approaching a sudden stop, a matter not to be underestimated.
However, JPMorgan pointed out that the current decline in capital flows is not solely EM-driven, but rather a result of broader global financial conditions tightening due to Trump's policies. Unlike previous instances, the situation does not stem from specific EM countries facing payment imbalances or currency pressures. Instead, the strong U.S. economy and associated policy uncertainties are redirecting flows from emerging markets, rather than a global "risk-off" scenario.
The future course of events hinges on Trump's actions and the performance of key U.S. economic indicators, such as job data, inflation, and retail sales, affecting the Federal Reserve's interest rate decisions. While a sudden stop in emerging markets remains a possibility, most economies are deemed capable of withstanding the potential shock. Within EMs, JPMorgan identified Romania, Malaysia, South Africa, and Hungary as the most vulnerable countries.