More Trouble For Nifty, Sensex? Trump's Policies May Affect Capital Inflows In Emerging Markets, Says JP Morgan

Investment bank JPMorgan has issued a stark warning about the economic challenges facing emerging markets (EM) amid President Donald Trump 's 'America First' policies.

According to their latest research, EM economies outside China witnessed net capital outflows amounting to $19 billion in the last quarter, with an additional $10 billion expected in the first quarter of the new year.

Global Financial Tightening
The phenomenon, known as a "sudden stop," could severely hamper growth prospects for these economies, which heavily rely on external investments.

JPMorgan cautioned that the current slowdown in capital inflows is not isolated to specific EM events but is driven by global financial tightening. Factors such as Trump's tariffs and tax cuts have bolstered the US economy, potentially prolonging higher US interest rates.

Implications and Risks
"This is not a situation where specific EM countries are under pressure akin to past financial crises," JPMorgan noted.

Unlike previous periods of crisis, the current scenario stems from a robust US economy redirecting capital flows away from EMs rather than global risk aversion.

Uncertain Future
The future trajectory will hinge on US economic data, including indicators like job growth, inflation rates, and retail sales, which could influence Federal Reserve decisions on interest rates.

JPMorgan emphasized that while a sudden stop could impact several economies, most should be resilient enough to absorb the shock.

Vulnerable Economies Identified
Among the EMs most vulnerable to capital flight risks highlighted by JPMorgan are Romania, Malaysia, South Africa, and Hungary. These countries may face heightened challenges in managing their balance of payments and currency stability if the outflow trends continue.

In conclusion, while the immediate effects of these capital outflows remain to be seen, the broader implications underscore the delicate balance EMs must navigate amid shifting global economic dynamics.