Capital Flows to BRIC’s Countries. Eduardo Pedreira Collazo BBVA Research Department Capital Flows. Miguel A. Canela Facultat de Matemàtiques Universitat de Barcelona. Javier Santiso Economista Jefe/Director Adjunto Centro de Desarrollo OCDE.
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
Eduardo Pedreira Collazo
BBVA Research Department
Miguel A. Canela
Facultat de Matemàtiques Universitat de Barcelona
Economista Jefe/Director Adjunto
Centro de Desarrollo OCDE
Latin American and Caribbean Economic Association
Mexico - November 2nd, 2006
Global Interest Rates
Stock of Liquidity
The sharp decline in interest rates, and global “excess” liquidity has been underlying the surge of private portfolio flows in the last years. Investors' strategies – “search for yield” - deepened this trend, leading to record inflows in 2005 and 2006:1Q.
Global Risk Aversion Index Indice - IARG
64 assets: emeging (dollars) and developed (local curencyl)
Source: BBVA - Capital Flows.
Investors' appetite for risk is not fixed over time. Besides that, they shift their portfolio allocation according to their expected return and perception of risk.
“Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.” Alan Greenspan
Corporate spread BAA
Sound macro fundamentals, high commodity prices and global growth, compressed EM spreads to historical levels, below 200 bp.