Demand-Pull: The Internally Induced Attractiveness of Emerging Markets
Record capital inflows in new directions outside traditional markets resulted in and also resulted from the decrease in the interest rate spreads of emerging economies. This fall in spreads was stimulated by a combination of several newly established dynamics. Among these dynamics, three were of particular importance. Firstly, investors in the 1990s identified an overall improvement in the emerging economies’ fundamentals vis a vis the 1970s.1 Secondly, the rise of institutional investors, together with the very high stock of the assets accompanying them, induced a growing tendency to diversify their portfolios — and hence increase their exposure to new markets. Thirdly, the overall risk effect of the growth of international liquidity supply was that, in order to maintain high yields and profits, investors moved down the credit spectrum via investments in emerging markets state and corporate bond investments.
KeywordsInstitutional Investor Trade Liberalisation Private Equity Free Trade Area International Capital Market
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