Emerging market alert as cheap money era ends
Bareksa • 18 Mar 2014
Emerging markets will see investment dry up as real interest rates rise sharply and capital becomes more expensive - bad news for a still fragile global economy warns Breakingviews' Andy Mukherjee (REUTERS)
The global cheap money era is ending and real rates are climbing higher
Reuters - In fact we have a Breakingviews' analysis which shows a strong negative correlation between real or producer price-inflation adjusted interest rates, and investments in emerging markets. Meaning that these two move in lockstep in opposite directions. Now why is that important? We saw that in 2009 when real interest rates shot up in the aftermath of the financial crisis, investments in emerging markets both in Asia and Latin America plunged. Then we saw a recovery in 2010 led by negative real interest rates, yes negative. But now the global cheap money era is ending and real rates are climbing higher. So, watch out for an investment strike in emerging markets.