Seven emerging economies at risk of an exchange-rate crisis are Sri Lanka, South Africa, Argentina, Pakistan, Egypt, Turkey and Ukraine, according to a new analysis by Nomura Holdings Inc.<\/p>\n
With five of the seven already in a currency crisis or a program run by the International Monetary Fund, that leaves South Africa and Pakistan as the standouts.<\/p>\n
At the same time, the eight countries with the lowest risk of a crisis are Brazil, Bulgaria, Indonesia, Kazakhstan, Peru, Philippines, Russia and Thailand, according to analysts including Robert Subbaraman, Singapore-based head of emerging-markets economics.<\/p>\n
\u201cThis is an important result,\u201d they wrote in a note Monday. \u201cAs investors focus more on EM risk it is important not to lump all EMs together as one homogeneous group; Damocles highlights a long list of countries with very low risk of full-blown crises.\u201d<\/p>\n
Nomura\u2019s findings are based on an early warning model – called Damocles – set up to identify exchange rate crises for 30 emerging economies. The model examines a variety of factors including foreign-exchange reserves, debt levels, interest rates and import cover.<\/p>\n
It has predicted two-thirds of the 54 developing nation exchange-rate crises since 1996, up to 12 months in advance, according to the analysts.<\/p>\n
\u201cThe results we have achieved are encouraging, but given the inherent limitations of any early warning system it would be foolish to make any exaggerated claims,\u201d they said.<\/p>\n
Damocles refers to the moral parable the Sword of Damocles, an allusion to imminent and ever-present danger.<\/p>\n