Emerging economies face “sudden halt” in capital flows, JPMorgan warns in Reuters

By Mark Jones

LONDON (Reuters) – Emerging markets could see a “sudden halt” in capital flows as President Donald Trump’s ‘America First’ policies boost the U.S. economy and attract money from poor countries, investment bank JPMorgan has warned.

Analysts fear sudden stops in capital flows would starve the economy of the money it needs to grow or still be able to keep going.

JPMorgan’s domestic indicators show there were $19 billion of “net capital outflows” from emerging economies excluding China last quarter, with another $10 billion expected to flee in Q1.

In a research note, the bank said, “Using the widely accepted academic definition, this indicates that EM ex China is on a sudden stop,” an event that should not be “taken lightly.”

There are some caveats for now.

While the current slowdown in capital flows is not due to an EM-centric event, Trump’s promise of tariffs and tax cuts is likely to strengthen global financial conditions, raising the possibility of longer-term US interest rates.

With this in mind, “this is not a situation where certain EM countries are facing balance of payments or currency pressures as they did in 1998-2002, 2013, 2015,” JPMorgan added.

Or the weak state of the US economy was driving “disaster-elimination” at the international level. “Instead, it is one of the strongest US economies and there is a risk of pulling policy flows out of EM,” the analysts wrote.

How things play out from here will depend on what Trump does and how key U.S. data on jobs, inflation and retail sales will influence the Fed’s interest rate moves, JPMorgan said.

Even if the shock stops in EM, most economies can absorb that shock. JPMorgan said the most vulnerable were Romania, Malaysia, South Africa and Hungary.