Emerging markets have become much more vulnerable to global shocks such as the Iran war because of their increased reliance on “flighty” sources of capital such as hedge funds in recent years, the IMF has warned.
Purchases of emerging market stocks and bonds by foreign investors have increased eightfold since the 2008 global financial crisis, with cumulative inflows approaching $4tn in 2025, mostly in the form of debt, the fund said in an analysis published ahead of its annual spring meetings in Washington next week.
Debt held by foreign investors now averages 15 per cent of GDP in emerging markets, up from 9 per cent in 2006, the IMF said. Four-fifths of this capital now comes from non-bank sources such as hedge funds and investment funds, double the share seen two decades ago.