From the Telegraph:
IMF fears 'asset spirals' in emerging markets on Fed tapering
“A repricing of risk could induce a run by investors holding speculative positions, especially if these are highly leveraged using short-term funding,” said the Fund in a study of global fall-out from the radical policies of the US Federal Reserve, the Bank of England, and the European central bank.
The report said a witches’ brew of sliding currencies and excess credit could spin out of control. “Thin markets could amplify price movements and kick off sale spirals. Contagion effects could both amplify and broaden asset price movements and capital outflows as investors flock out of emerging market economies,” it said.
Exit must be “very carefully managed”, said Karl Habermeier, the IMF’s head of capital markets, advising countries at most risk of capital flight to beef up their defences before it is too late.
The report is the latest warning from the IMF that the return to calm in Brazil, Turkey, India, and South Africa among others may not last once the Fed begins to taper bond purchases, a move likely to push US bond yields yet higher and force up the global cost of borrowing....MORE
