In the fourth quarter of 2024, emerging economies, excluding China, experienced a net capital outflow of $19 billion, with an additional $10 billion projected for the first quarter of this year.
On January 23, investment bank JPMorgan warned that emerging markets may be undergoing a 'sudden stop' in capital flows, driven by President Donald Trump's 'America First' policies, which are bolstering the U.S. economy and attracting funds away from poorer nations.
Analysts express concern over this phenomenon, as it deprives economies of essential capital for growth and sustainability.
According to JPMorgan, the current decline in capital flows is not triggered by specific events in emerging markets but stems from tightening global financial conditions. Trump's tax commitments and cuts are likely to keep U.S. interest rates elevated for an extended period.
JPMorgan emphasizes that this situation does not mirror past crises in emerging markets, such as those in 1998-2002 or 2013-2015, where specific nations faced balance of payments or currency pressures.
Moreover, it is not a consequence of a weak U.S. economy causing a global sell-off; rather, it results from robust U.S. economic growth and policy risks prompting capital withdrawal from emerging markets.
The future trajectory of this situation will depend on Trump's subsequent policies and whether key U.S. economic indicators—such as employment, inflation, and retail sales—are strong enough to influence the Federal Reserve's interest rate decisions.
Even if a sudden stop occurs in emerging markets, most economies are likely to withstand the shock. However, JPMorgan identifies Romania, Malaysia, South Africa, and Hungary as the most vulnerable.
The continuous strengthening of the U.S. dollar presents potential risks for emerging markets already grappling with financial imbalances.