Emerging Markets (MSCI) – Threat of a Debt Crisis

Executive Summary

Emerging markets, which were much celebrated for its growth and resilience during the US and Eurozone crisis in 2008 and 2011, are facing the threat of a crisis that can have more impact than the previous economic downturns. Economists and international agencies have noted that the risk of a crisis has shifted from the advanced regions of the world to the emerging markets. Many analysts have predicted the onset of a crisis in the emerging markets after the decline in global commodity prices in 2015. The impact of the negative sentiments globally on investing in the emerging markets, slowdown in GDP growth rates, expected increase in interest rates by the US Federal Reserve (Fed) and the capital outflow thereafter may have varied impact on the countries. The volatile nature of capital markets, depreciating currencies in most of the countries adds to their vulnerability. With most of these countries having trade deficits and high levels of external debt, the chances of default, especially corporate default, has increased. This drives us to an interesting idea to analyse the MSCI emerging markets based on relevant economic indicators and classify them according to their vulnerability to a a crisis.