By Arun Kumar,IANS,
Washington : India and Brazil attracted the largest equity inflows to emerging markets as global financial stability improved over the last six months but fragilities remain, according to the International Monetary Fund (IMF).
The response of emerging market firms to equity and debt inflows has been strong, noted the Global Financial Stability Report (GFSR), assessing key risks facing the global financial system, released here Wednesday.
The two-speed recovery-modest in advanced economies and robust in emerging market economies has posed different policy challenges for countries, the IMF said suggesting emerging market economies limit overheating and a buildup of vulnerabilities-to avoid “cleaning” later.
On the other hand, the main task facing policymakers in advanced economies is to shift the balance of policies away from reliance on macroeconomic and liquidity support to more structural policies-less “leaning” and more “cleaning” of the financial system, it said.
Equity issuance rose to the highest levels ever in Brazil and China, and although in India and Korea such issuance remained below pre-global crisis highs, it surpassed pre-Asian crisis levels, GFSR said.
Similarly, the supply of emerging market external corporate bonds in 2010 surpassed historical records in aggregate, led by Latin American corporate bonds.
The advent of the financial crisis in 2008 appears to have caused a correction in leverage, though signs point to a rebound.
Leverage ratios have increased above historical averages in the largest emerging markets since 2005, but firms in Brazil, Russia, India and China (the BRIC countries) have deleveraged to some extent since the fourth quarter of 2008.
Several countries tightened real estate lending criteria, including India, China, Hong Kong, Korea, Malaysia, Singapore and Thailand over concerns that inflows could fuel excessive credit growth and asset price bubbles.
Global exchange-traded funds (ETFs) saw strong inflows in 2010, growing by more than 14 percent in the first three quarters to nearly $1.2 trillion in assets under management.
US, European, and Japanese equities constitute more than 50 percent of overall ETF exposures, while India, Brazil, Russia, and emerging Asia equities form the bulk of the emerging market ETF exposures.
By assets, two-thirds of the ETFs are listed in the United States, while European (22 percent) and Asia-Pacific (7 percent) funds were the fastest growing segments in 2010.