External finance for emerging markets: coverage and definitions This IFSL report sets out the extent of their external financing from commercial sources, including foreign direct investm
Trang 1External finance for emerging markets: coverage and definitions
This IFSL report sets out the extent of their external financing from commercial sources,
including foreign direct investment (FDI), portfolio investment, listings on foreign stock
exchanges and bank lending (official flows are not included) Figures in this year’s report
exclude five countries Hong Kong, Israel, Singapore, South Korea and Taiwan
-previously identified as developing countries which have been reclassified by the IMF as
advanced economies Adjustments for this revision have been made to IMF time series as well
to BIS statistics In conventional balance of payments methodology, an equity holding in an
enterprise of up to 10% is considered as portfolio investment and in excess of 10% as direct
investment.
OVERVIEW
The ability of developing countries to access external finance has a crucial
role in their economic development Private inflows of external finance to
emerging economies nearly halved to an estimated $372bn in 2009 from
$720bn in 2008 and only a quarter of the peak of $1,524bn in 2007 (Chart 1)
In 2009, FDI remained the largest component with net investment of $430bn,
but this represented a fall from $728bn in 2008 FDI is likely to recover in
coming years as opportunities arise from sustained economic growth in many
emerging markets
There was a net $57bn outflow of international bank lending in 2009 as
repayments of loans exceeded new lending This compared with a modest net
$72bn inflow of lending in 2008 The downturn in bank finance is a
reflection of credit constraints and the withdrawal of many banks from all
foreign markets, not only developing countries and emerging markets Much
of the withdrawal of bank lending to emerging economies occurred in Q4
2008 and Q1 2009 when there was a cumulative net reduction of lending of
some $300bn Net inflow of lending began to recover in Q4 2009
In 2008 there was net disinvestment of $80bn by foreign portfolio investors,
notably in Russia, Malaysia and India, although other countries, such as
China, Mexico and Chile saw a continuing inflow, albeit at a lower level than
previous years The year 2008 followed several years of growing portfolio
investment Reviving equity markets and with improving economic prospects
is likely to have lifted portfolio investment in emerging markets to $50bn in
2009
Detailed breakdown for 2008 shows that the BRIC countries (Brazil, Russia,
India & China) along with Hungary attracted the strongest overall flow of
external private finance into emerging economies China was the largest
market with $124bn, followed by Hungary $68bn, Brazil $42bn, Russia
$41bn and India $36bn (Table 1) Much of this was underpinned by inflow of
FDI, with a net outflow in many countries of international bank lending and
portfolio investment
The US is the largest portfolio investor in emerging markets with 31% of
such investment worldwide, followed by the UK 11% and Luxembourg 9%
UK banks account for 16% of foreign claims on emerging markets, more than
Table 1 Emerging economies receiving
largest inflows of external finance
Portfolio inv.
10 1 -1 -27 -15 5 4 2 -4 3 -4 5 11 1 -8 -21 -41
-80
Int bank lending -34 18 -3 -6 9 8 17 7 14 5 9 1 -5 3 -5 -12 46
72
FDI 148 49 45 73 41 23 13 23 17 17 18 15 10 11 9 7 210
728
China Hungary Brazil Russia India Mexico Romania S.Arabia Poland Chile Turkey Kazakhstan Thailand Czech Republic Argentina Malaysia Other countries Total
Total flow 124 68 42 41 36 35 34 32 26 25 23 20 16 14 -4 -26 213 720
$bn, 2008
-100 100 300 500 700 900 1100 1300 1500
2009* 2008 2007 2006 2005 2004 2003 2002 2001 2000
*IFSL estimate for portfolio investment, UNCTAD estimate for FDI Source: BIS, IMF
Chart 1 Inflows of external finance to
emerging markets
$bn, combined inflow of FDI, portfolio investment & bank lending to emerging markets
Total inflow
International bank lending Foreign direct investment Portfolio investment
Trang 2SOURCES OF EXTERNAL FINANCE
This section includes analysis of the main types of external finance and the
extent to which they have been accessed by countries in the various regions
As well as covering foreign direct investment, portfolio investment and bank
lending, it also features emerging markets’ access to global equity markets
through listings on foreign stock exchanges, especially in London and New
York
Foreign direct investment
FDI is linked to cross-border mergers and acquisitions, which are in turn
heavily influenced by movements in equity markets IMF figures indicate
that FDI in emerging markets rose by 6% to $728bn in 2008, while
provisional estimates from UNCTAD point to an estimated 35% decline to
$430bn in 2009 (Chart 2) As indicated in the overview, FDI is likely to
recover in coming years as opportunities arise from sustained economic
growth in many emerging markets Emerging markets’ share of world FDI
was around 40% in 2008 and 2009 up from around 28% between 2005 and
2007
FDI flows to Asia, at $241bn in 2008, matched those to central and eastern
Europe (CEE) (Chart 3) Russia, Hungary, Turkey and Poland made up
nearly two thirds of the CEE total FDI in Asia is dominated by China where
inflows of $148bn accounted for 61% of the Asian total in 2008 China has
been the biggest single destination for FDI not just in Asia, but in all
emerging markets since 2001 India has seen a jump in FDI in recent years:
$41bn in 2008 and over $20bn in 2006 and 2007, previously not having
exceeded $8bn Kazakhstan was the next largest market in Asia FDI in Latin
America was up to $127bn, over half of which was directed to Brazil and
Mexico FDI in Middle East and Africa is much less at $78bn and $41bn
respectively
Portfolio investment
Flow of portfolio investment Emerging economies experienced a net $80bn
outflow or disinvestment by foreign investors in 2008 Recovering equity
markets and economic prospects should have returned portfolio investment
to an estimated net $50bn inflow in 2009, lower than inflows of $170bn in
2006 and $225bn in 2007 (Chart 1) A few countries recorded a net inflow
from foreign investors in 2008: China attracted the largest inflow at $10bn,
followed by Mexico and Chile Significant disinvestment was experienced by
Russia and Malaysia, both over $20bn, and India $15bn
Against disinvestment of $80bn from emerging economies, global portfolio
investment into all countries was $1,342bn, down nearly two thirds on 2007
investment of $3,614bn Portfolio investment into emerging markets as a
share of all such investment had risen from 1% in 2002 to 6% in 2007 but fell
back to -6% in 2008 (Chart 2)
Portfolio investment holdings The IMF’s annual Coordinated Portfolio
Investment Survey (CPIS) has been undertaken annually since 2001, with 74
countries participating in the recent surveys The latest survey shows that
non-resident holdings of portfolio investment in the 20 largest emerging
2
Chart 3 Foreign direct investment flows into
emerging markets
Source: IMF Balance of Payments Statistics Yearbook
$bn, net investment each year
Europe Asia
Africa M.East
Latin America
0 30 60 90 120 150 180 210 240
2008 2006
2004 2002
2000 1998
1Derived from creditor countries' data Source: IMF Coordinated Portfolio Investment survey
Chart 4 Portfolio investment: non-resident
holdings in emerging markets
$bn, amounts outstanding, end-year 1
0 50 100 150 200 250 300 350 400 450
Poland
Turkey South Africa
Russia Mexico
Brazil India China
2007 2005 2008
1UNCTAD estimate for 2009
2IFSL estimate for 2009 for emerging markets only Source: BIS, IMF
Chart 2 Share of external finance flowing to
emerging markets
$bn, global market flows of investment & finance Bars: Flows to all countries
Line: Flows to emerging markets
FDI Int.bank
lending Portfolio inv -2000
-1000 0 1000 2000 3000 4000 5000 6000
2009 2
2008 2007 2009 2008 2007
2009 1
2008 2007
Trang 3markets more than halved to $1,022bn from $2,440bn at end-2007 The value
of non-resident portfolio holdings in China remained higher than in any other
emerging market at end-2008 but at $225bn fell by nearly a half from
$407bn in 2007 (Chart 4) With holdings in Brazil and India being the next
largest, BRIC countries dominate the standings with only Mexico as the
fourth largest destination ahead of Russia
Since the onset of the financial crisis the spread on the emerging market bond
index (EMBI) has been volatile initially rising steeply from 308 basis points
(bp) in mid-2008 to 724 bp at the end of the year, before declining steadily to
294bp at end-2009 (Chart 5)
Main sources of portfolio investment The biggest source of portfolio
investment in emerging markets originates from investors located in the US,
the UK and Luxembourg, which hold 30%, 11% and 9% of such assets
respectively The value of US investors’ assets in 20 major emerging markets
totalled $411bn at end-2008, while the value of investments in the UK was
$145bn (Table 2) Luxembourg is next largest with $123bn, followed by
Hong Kong and Singapore
Brazil and Mexico are the most important countries for US investors
reflecting close US ties with Latin America, although the US is also the
biggest portfolio investor in Russia and India Hong Kong is the largest
investor in China, which makes up about 90% of Hong Kong’s investments
Investments from Luxembourg and the UK are more evenly spread around
the world, although the UK is only just behind the US as investor in India
Germany is the largest investor in Poland, Hungary and the Czech Republic,
reflecting its strong links with CEE
Listings on foreign stock exchanges Larger companies can more easily access
capital markets through joining larger international exchanges in
addition to their domestic exchange The New York Stock Exchange (NYSE)
and the London Stock Exchange (LSE) are the exchanges where most such
listings from emerging markets are made with 182 on the NYSE and 144 on
LSE (Table 3) Latin American countries tend to list in New York, while
African and central European countries are more likely to list in London
Listings by Asian companies are divided between the two Separate LSE
figures for the Alternative Investment Market (AIM) show that 250
AIM-listed companies cite their main country of operation as being in an
emerging market including 48 citing China
International bank lending
Flows of cross-border lending to individual emerging markets tend to show
much greater volatility from year to year than do flows of FDI or portfolio
investment Lending to emerging markets peaked at $612bn in 2007, before
plummeting to $72bn in 2008 and recording a net $57bn outflow in 2009
The flow of bank lending to emerging markets rose to $271bn in the first half
of 2008 before stalling in Q3 and then going into reverse with a net $312bn
withdrawal of bank finance in Q4 2008 and Q1 2009 The net outflow was
stemmed with a net $52bn inflow of lending in the fourth quarter of 2009
Between Q3 2008 and Q4 2009 Russia experienced a 32% drop in
cross-border bank finance outstanding (Chart 6) Lending to China was also down
15% over this period, but lending flows had begun to recover in Q4 2009,
3
Chart 5 Emerging market spreads &
US bond yield
Source: IMF Global Financial Stability Report, Federal Reserve
Emerging Market Bond Index (EMBI) spread
& US 10 year Treasury yield, %
US Treasury yield, % EMBI spread, basis points
0 1 2 3 4 5 6 7 8
2010 2008 2006 2004 2002
200 400 600 800 1000
US Treasury yield
EMBI spread
Source: IMF Coordinated Portfolio Investment survey
Table 2 Sources of portfolio investment in
emerging markets
US UK Luxembourg Hong Kong Singapore Germany Japan Netherlands France Italy Switzerland Others World total
Portfolio investment assets
$bn 4268 2569 2120 555 307 2149 2377 1140 2529 957 882 11020 30873
Portfolio investment holdings, major investing countries,end-2008
of which:
invested
in major emerging markets
$bn 411 145 123 117 49 49 44 34 27 12 10 333 1354
% share of port inv in major emerging markets 30.4 10.7 9.1 8.6 3.6 3.6 3.3 2.5 2.0 0.9 0.7 24.6 100.0
% share of investing country's portfolio investmt 9.6 5.6 5.8 21.0 16.0 2.3 1.9 2.9 1.1 1.2 1.1
Source: BIS Quarterly Review of Banking & Financial Market Developments
Chart 6 International bank lending to
emerging markets
$bn, amounts outstanding, external position of BIS-reporting banks to developing countries
Sep 2008 Dec 2005 Dec 2009
0 25 50 75 100 125 150 175 200 225
UAE Poland Turkey India Russia Brazil China
Trang 4unlike Russia where a net outflow persisted.
Sources of foreign claims on emerging markets Consolidated BIS data for
banks in 30 reporting countries show that foreign claims outstanding on
emerging markets in September 2009 totalled $3,949bn on an ultimate risk
basis These figures include local claims of foreign affiliates which are not
included in the data for international bank lending The UK banking sector
was the biggest lender to emerging markets worldwide with foreign claims
totalling $622bn at end-September 2009, representing 16% of all such
lending globally (Chart 7) The UK was followed by the US with 14%,
Germany 10% and France 9%
Other exposures to BIS-reporting banks BIS also collects statistics on other
exposures of banks in 24 reporting countries on a consolidated ultimate risk
basis rather than the unconsolidated basis used for the lending data Although
not directly comparable to the data on loans outstanding, they help to fill out
the picture on external finance Total of other reported exposures to emerging
markets was $1,362bn in September 2009 The two major components are
guarantees extended $665bn and credit commitments $546bn, with
derivatives contracts of $152bn making up the remainder
4
Chart 7 Source of foreign claims on
emerging markets
*Consolidated foreign claims of BIS reporting banks on individual countries, ultimate risk basis (includes local claims of foreign affiliates) Source: BIS Quarterly Review of Banking & Financial Market Developments
Foreign claims on emerging markets*, % share, September 2009
Total foreign claims: $3,949bn
Other
US
Germany
France Netherlands
Japan
16%
19%
5%
5%
6%
9%
5%
10%
11%
14%
Austria
Spain Italy
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IFSL Research:
Report author: Duncan McKenzie
Director of Economics, Duncan McKenzie
d.mckenzie@ifsl.org.uk +44 (0)20 7213 9124
Senior Economist: Marko Maslakovic
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SOURCES
Bank for International
Settlements
Quarterly Review of Banking &
Financial Market Developments
www.bis.org
International Monetary Fund
Balance of Payments Stats.Yearbook
Coordinated Portfolio Investment
Survey (CPIS)
Global Financial Stability Report
www.imf.org
London Stock Exchange
www.londonstockexchange.com
New York Stock Exchange
www.nyse.com
UNCTAD
www.unctad.org