Goodbye BRICS, Welcome BIITS
- October 21, 2013
- Oguz Erkol
The acronym for the association of five major emerging national economies, Brazil, Russia, India, China & South Africa, has been on of the most frequently used elements in the financial terminology for recent years. Now, the outlook for emerging economies is stabilizing due to approaching new-normal and evolving international monetary reform, as some authors of Bloomberg introduce us the BIITS (Brazil, India, Indonesia, Turkey & South Africa).
Changing global conditions are also altering the risk perception of the emerging markets, that remained remarkably strong through recent years. The end of zero interest rate policies of developed economies is getting closer day by day. The threat of diminished global liquidity had already sparked the biggest emerging-market currency sell-off in five years, with the Indian rupee and Turkish lira hitting record lows. As most economists advise emerging countries to adjust a lower growth rate and refocus their economies, investors also reassess the assets held in emerging markets.
The general opinion is that emerging markets are no longer blanket buys, especially the ones who may remain vulnerable following the monetary tightening in the developed economies. This time, we do not have an acronym for shining emerging markets but for fading ones and the five major emerging markets that may likely be risky in the near future are BIITS, according to Bloomberg.
Speaking about Turkey, current account deficit is the chronic disease of its economy and its tremendous foreign exchange requirement to finance this deficit is putting the economy at risk. The annual growth rate at the end of last year was 2.2%, as well as was good sign in the way of re-balancing. This humble growth also led the economy moving out of danger with decreasing CAD. However, 1Q13 results were simply unsatisfying; a 4.4% growth rate y-o-y and CAD up to $44 billion (this means a 25% increase in CAD).
It is not so far where investors will start to more choosy among emerging markets than they have been in the past and Turkey should be well-prepared to restrain the capital outflows.