Capital Markets and Corporate Governance Service Line Capital Markets Practice, FPD Emerging Capital Markets Update for July 2011 All data are as of Friday, July 29, 2011. The regional indices are based on an average of major EM countries in each region where the data are available. Summary for July 2011 Most of the market s attention in July was on Europe s sovereign debt crisis and the fight in the US Congress over raising the debt ceiling. However, emerging economies generally showed few signs of being affected by those events. The EM government bond markets index (GEMX) continued to post a positive return, and bond yields and currency values were stable. However, negative equity returns and increased CDS rates in some developing countries were reminders of the interconnectedness of global economic challenges. Also, despite the obvious slowdown of the economic recovery in advanced markets, six emerging market central banks continued to raise their policy rates to fight the threat of inflation. Money Markets Increases in Central Bank Policy s and Money Market s: Seven central banks in monitored emerging markets changed their policy rates in July 2011. Six of these countries raised their rates by 25 to 75 basis points (Nigeria +75 bps and India +50 bps), while Pakistan lowered its policy rate by 50 basis points. In addition, the ECB raised its refinance rate by 25 basis points. Policy rates and money market rates (July 2011): Policy Country Current Latest Change (%) (%) G7 and Euro region Europe Total Changes in 2011 (bps) Date of Latest Changes 1 Key U.K. 0.5-0.5 3/5/2009 Base Euro Region Period End (%) 1.5 +0.25 +50 7/7/2011 Refinance 1.1 0.75 Japan 0-0.1-10/5/2010 Overnight 0.078-0.001 Money Market Total Selected Money Changes Market in BPS (YTD) Deposit Overnight Deposit 1 Week BOJ Unsecured Claim U.S. 0.25-0.75 12/16/2008 Fed Funds 0.11 0.01 Federal Funds Canada 1.0 +0.25 9/8/2010 Overnight 0.95 0.25 Deposit Overnight Hungary 6.0 +0.25 +25 1/24/2011 Base 7 0.25 Overnight Repo Poland 4.5 +0.25 +100 6/8/2011 Repo 4.3 0.82 Interbank Offered Russia 8.25 +0.25 +50 4/29/2011 Refinancing 5.03 3.28 Prime Overnight Slovakia 2.5-0.75 12/9/2008 Repo 1.74 0 Overnight Interbank Turkey 6.25-0.25-25 1/20/2011 Benchmark 6.25-0.25 One Week Repo
Asia Middle East and Africa Latin America Croatia 9.0 4.50 12/31/2007 Discount 0.48-0.34 Overnight Interbank Offered Kazakhstan 7.5 +0.5 +50 3/9/2011 Refinancing 0.58-0.07 Seven Days KIBOR Romania 6.25-0.25 5/4/2010 Key Policy 4.33 1.84 ROBOR Overnight Ukraine 7.75-0.75 8/10/2010 Discount 6.1-3 Overnight on Credit China 6.56 +0.25 +75 7/6/2011 Lending 3.48-1.04 SH Interbank Offered India 7.0 +0.5 +175 7/26/2011 Reverse Repo 7.65 2.15 INR Overnight Deposit Indonesia 6.75 +0.25 +25 2/7/2011 Reference 5.98 0.32 Interbank Offered Malaysia 3.0 +0.25 +25 5/5/2011 Overnight 2.98 0.26 BNM Interbank Philippines 4.5 +0.25 +50 5/5/2011 Overnight 6.5 0.5 Overnight Repo Thailand 3.25 +0.25 +125 7/13/2011 Repo 3.25 1.3 Overnight Bibor Pakistan 13.5-0.5-50 7/30/2011 Discount 13.33 0.53 KIBOR One Week Sri Lanka 7.0-0.25-25 1/11/2011 Repo 8.13-0.32 Overnight Deposit Vietnam 9.0 +1.0 11/8/2010 Base 11.97 1.37 VNIBOR Overnight Interbank Egypt 8.25-0.25 9/17/2009 Deposit 9.07 0.8 Interbank s Nigeria 8.75 +0.75 +250 7/26/2011 Policy rate 8.75 0 Interbank Offered (7 days) South Benchmark 5.5-0.5 11/19/2010 Repo 5.26-0.08 Africa Overnight Kenya 6.25 +0.25 +25 5/31/2011 CB rate Lebanon 10.0-2.00 12/1/2009 Repo 3.5 0 Overnight Deposit Morocco 3.25-0.25 3/25/2009 Repo 3.25-0.05 Weighted Average Brazil 12. 5 +0.25 +175 7/20/2011 SELIC 12.42 1.75 Selic Average Overnight Chile 5.25 +0.25 +200 6/14/2011 Overnight 5.45 1.75 6 Month Colombia 4.5 +0.25 +150 7/29/2011 Overnight 4.26 1.29 Money Market s Mexico 4.5-0.25 7/17/2009 Overnight 4.49-0.11 Official Overnight Peru 4.25 +0.25 +125 5/12/2011 Reference 4.49 1.65 Deposit One Day Argentina 11.5 (***) (***) Repo 10.06 0.63 Interbank Uruguay 8.0 +0.5 +150 6/23/2011 Overnight Venezuela 9.2 (***) (***) Overnight 18.9 2.22 Avg Interest s Sources: Bloomberg News: Central Bank Watch, Countries, s, Changes. 2
Fixed Income and Credit Markets Small Decline in Bond Yields: In July: Government bond yields declined slightly in the secondary market. Yields in Europe/Central Asia fell by 7 bps; Latin America and Asia fell by 5 bps and 3 bps, respectively. Yields declined in nine countries and increased in six. Indonesia (-56 bps), Mexico (-30 bps) and Peru (-20 bps) posted the largest drops, while yields in Brazil (+41 bps) and China (+20 bps) increased the most. As a benchmark, the yield of the US government bond index dropped by 36 bps even after two rating agencies warned on the country s triple-a ratings. The counter-intuitive yield change may have indicated that global investors were more concerned about the global economic slowdown and European debt crisis than about the possibility of default on US government debt. Year to date: The average bond yield increased in Latin America by three bps, was unchanged in Asia, and fell by 9 bps in Europe/Central Asia/Africa. The yield of the US government bond index fell by 50 bps, pushing the 10-year yield index down to 2.8%. In emerging markets, YTD yields increased in nine countries and decreased in seven. Brazil (+64 bps), India (+51 bps), Peru (+27 bps) and Thailand (+26 bps) had the largest increases while Indonesia (-70 bps), Hungary (-46 bps), Mexico (-38 bps) and Colombia (-29 bps) had the largest decreases. 10 Average 10 years Government Bond Yield 8 6 4 2 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Asia (5.63%) ECA/SSA (6.28%) LAC (8.27%) US (2.8%) Note: Countries included in the regional index: Asia: China, India, Indonesia, Malaysia and Thailand; ECA/SSA: Hungary, Poland, Russian Federation, Slovak Republic, Turkey and South Africa; LAC: Brazil, Chile, Colombia, Mexico and Peru. Source: Bloomberg. 3
Increased Global Sovereign Spreads: In July: EMBI global sovereign spreads widened in most regions: Europe/Central Asia (+29 bps), Middle East/North Africa (+19 bps), Sub-Saharan Africa (+18 bps), Latin America (+6 bps) probably driven more by the large decline in the US bond yield than by EM-specific risk. Among 24 countries monitored, only five tightened; of these, Sri Lanka (-16 bps), Chile and Peru (-10 bps each) had the biggest contractions. On the other hand, spreads in Hungary were up 57 bps, the most among all 19 countries with widening spreads, followed by Egypt (+35 bps), Vietnam (+34 bps), Turkey (+33 bps), and Pakistan (+32 bps). Year to date: Spreads widened in the Middle East/North Africa by 67 bps, the most in all regions. Europe/Central Asia (+34 bps), Latin America (+4 bps) and Asia (+2 bps) also widened, while Sub- Saharan Africa (-8 bps) narrowed. Country-specific: Pakistan (+235 bps) and Egypt (+103 bps) widened the most among 14 countries with widening spreads. Argentina (+85 bps), Lebanon (+68 bps) and Turkey (+57 bps) also widened by a sizable amount. Among the ten countries with narrowing spreads, Colombia (-40 bps), Brazil (-29 bps), Kazakhstan (-27 bps) and Hungary (-20 bps) narrowed the most. 600 EMBI Global Sovereign Spread Index 400 200 0 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Asia (177) ECA (265) LAC (361) MENA (351) SSA (321) Note: Excluding Tunisia temporarily due to data issue (since April 2011). Sources: Bloomberg: JP Morgan index (JPMX). 4
GEMX Continued to Gain in July: In July: The GEMX Global Total Return Index, which measures local currency government bond performance in 24 investible emerging markets, closed the month with a positive return of 0.82 percent. All regional indices registered positive returns: Asia (+1.6%), Latin America (+1.3%) and Europe/Central Asia/Africa (+0.01%). Among 24 GEMX countries, 18 posted gains. Indonesia (+4.7%), the Philippines (+4.0%), Nigeria and Chile (+3.3%, each), Peru (+3.1%) gained more than three percent. Turkey (-3.1%) and Kenya (-2.4%) had the largest losses among six losing countries. Year to date: The GEMX Global Total Return Index (unhedged) posted a seven percent gain and all regional indices gained: Latin America (+11.4%), Europe/Central Asia/Africa (+5.8%) and Asia (+4.7%). At the country level, 21 countries posted positive returns. Hungary (+19.0%), Indonesia (+17.6%), the Russian Federation (+15.9%), Romania and Uruguay (+13.5%, each), Brazil (+12.5%), Mexico (+11.2%), Poland (+10.5%) and Costa Rica (+10.1%) were the top performers, gaining by double digits. On the negative side, Kenya (-25.7%) incurred a substantial loss. YTD Comparison to other indices: GEMX s lead over GBI Global, the government bond index for developed countries produced by JP Morgan, narrowed by 1.6 percent to 0.7 percent after GBI's large monthly gain of 2.4 percent. The GEMX underperformed GBI-EM broad diversified index, which tracks 16 emerging economies, by 0.4 percent. 150 140 130 120 110 100 90 80 70 GEMX Total Return Index (2/29/2008 = 100, Unhedged) Jun-09 Sep-09 Dec-09Mar-10 Jun-10 Sep-10 Dec-10Mar-11 Jun-11 Asia (124.9) ECA/SSA (127.0) LAC (143.9) Global (131.3) Note: 1. Countries included in the GEMX regional index: Asia: China, India, Indonesia, Malaysia, Philippines, Sri Lanka and Thailand; ECA/SSA: Hungary, Poland, Romania, Russian Federation, Turkey, Egypt, Kenya, Morocco, Nigeria and South Africa; LAC: Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and Uruguay. 2. Countries included in the GBI-Global index: Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Spain, Sweden, the United Kingdom and United States. 3. Countries included in the GBI-EM broad diversified index: China, India, Indonesia, Malaysia, Philippines, Thailand, Hungary, Poland, Russian Federation, Turkey, South Africa, Brazil, Chile, Colombia, Mexico, Peru. 4. Since November 30, 2009, Markit has added five new countries (Sri Lanka, Romania, Kenya, Costa Rica and Uruguay) and inflation-linked bond indices for Brazil, Chile, Colombia, Mexico, Uruguay and South Africa to the GEMX indices. The graph is based on a re-based GEMX aggregated total return index (unhedged). 5. For comparison purposes, the GBI global index level has been re-based, as have all country indices. Source: Markit and JP Morgan (Morgan Markets). 150 140 130 120 110 100 90 80 70 GBI Global Total Return Index (2/29/2008 = 100, level US$) Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 GBI Global (121.6) Germany (114.8) Japan (144.8) United Kingdom (103.9) United States (117.2) 5
Mixed Moves in CDS s: In July: Regional CDS rates made mixed moves: Asia (-4 bps), Europe/Central Asia/Africa (+13 bps) and Latin America (+0.5 bps). By comparison, the average CDS rates in mature markets (UK, Japan and Germany) increased by 11 bps. CDS rates increased in 14 of 23 monitored countries. Hungary (+42 bps), Croatia (+38 bps), Poland (+21 bps), Slovakia and Turkey (+17 bps, each) had the largest increases. At the same time, Venezuela (-30 bps) posted the largest drop. Year to date: CDS rates increased in Asia (+14 bps) but declined in Europe/Central Asia/Africa (-4 bps) and Latin America (-2 bps). The average CDS rate in mature markets increased by 8 bps. s in twelve countries increased, and Croatia (+56 bps), Turkey (+52 bps), Slovak Republic (+41 bps) and Vietnam (+34 bps) had the largest increases. Among the eleven countries with falling rates, Hungary (-72 bps), Ukraine (-63 bps), Venezuela (-54 bps) and Romania (-52 bps) dropped the most. 600 Regional Average 5Y CDS (bps) 400 200 - Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Asia (113.4) ECA/SSA (223.0) LAC (187.4) Mature Markets (76.2) Note: Countries included in regional index: Asia: China, Indonesia, Malaysia, Philippines and Thailand; ECA/SSA: Croatia, Hungary, Kazakhstan, Poland, Romania, Russian Federation, Slovak Republic, Turkey, Ukraine and South Africa; LAC: Argentina, Brazil, Chile, Colombia, Mexico and Peru; Mature Markets: UK, Japan and Germany. Sources: Bloomberg and staff calculation. 6
Equity Markets and Currency Markets Mixed Results in Equity Markets: In July: Regional equity indices had mixed results this month: Asia (+2.4%) and Europe/Central Asia (+0.9%) continued to post positive returns while Middle East/North Africa (-4.5%), Latin America (-2.7%) and Sub-Saharan Africa (-0.6%) lost. Mature markets (US, UK and Japan) also fell (-1.2% on average) for the month. Among individual countries, 20 posted losses while 12 gained. Kenya (-9.3%), Turkey (-7.5%), Egypt (-7.1%) and Hungary (-6.7%) incurred losses of more than 5 percent in July while Venezuela (+16.5%), Thailand (+12.3%) and Peru (11.0%) gained by double digits. Year to date: Europe/Central Asia (+4.6%) and Asia (+1.8%) had positive returns while Middle East/North Africa (-14.2%), Sub-Saharan Africa (-4.3%) and Latin America (-1.5%) lost. By comparison, the mature markets gained 2.4 percent on average. By country, there were 15 gainers and 17 losers. Romania (+32.5%) led the gainers, followed by Slovakia (+23.2%), Indonesia (+22.3%), Croatia (+19.1%), Sri Lanka (+15.2%), Thailand (+12.6%) and Poland (+10.6%) with double-digit gains. Meanwhile, Ukraine (-31.9%), Egypt (-22.9%), Kenya (-20.7%), Vietnam (-18.7%), Turkey (-13.2%), Peru (-11.3%), and Lebanon (-11.3%) were the worst performing markets so far. 180 160 140 120 100 80 60 40 20 Market Capitalization Index (7/1/2008 = 100) Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Asia (160.2) ECA (82.8) LAC (114.3) MENA (63.9) SSA (116.4) Mature Markets (101.4) Note: 1. Regional Index value is calculated based on the sum of market capitalization of counties in the region. 2. Countries included in the regional index: Asia: China, India, Indonesia, Malaysia, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam; ECA: Croatia, Hungary, Kazakhstan, Poland, Romania, Russian Federation, Slovak Republic, Turkey and Ukraine; MENA: Egypt, Lebanon, Morocco and Tunisia; SSA: Kenya, Nigeria and South Africa; LAC: Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela; Mature Markets: US, UK and Japan. Sources: Bloomberg and staff calculation. 7
Mixed Results in Currencies, Too: In July: The regional average exchange rate index made slight mixed moves against the US dollar: Asia (+1.1%), Latin America (+0.4%) gained while Europe/Central Asia (-1.1%), Middle East/North Africa (-0.4%) and Sub-Saharan Africa (-0.1%) lost. Other major currencies (GBP, Euro, JPY) gained 2.5 percent, on average, against the US dollar. Among 33 emerging economies, currencies depreciated in 19 economies and appreciated in 14. Turkey (-3.9%), Hungary (-2.1%), Kenya (-1.8%), Croatia (-1.5%) and Poland (-1.2%) depreciated by more than one percent. Meanwhile, Thailand (+3.2%), Philippines (+2.8%), Chile (+2.5%), Malaysia (+1.8%), South Africa (+1.1%) gained by one percent or more. Year to date: Most currencies gained against the US dollar. The average exchange index in Europe/Central Asia gained 4.7%, followed by Latin America (+4.0%), Middle East/North Africa (+1.6%) and Asia (+1.5%). Only Sub-Saharan Africa (-3.8%) lost. The average currency value in developed markets gained 6.1% for the year against the US dollar. Currencies in 23 out of 33 monitored countries gained. Hungary (+11.1%), the Russian Federation (+10.6%), Romania (+9.1%), Uruguay (+8.2%), Colombia (+8.0%), Slovakia (+7.5%) and Brazil (+7.1%) were the top gainers. Meanwhile, Kenya (-11.2%) and Turkey (-8.6%) had the largest losses. The appreciation of currencies in many emerging economies was caused partially by the weakness in the US dollar for the year. 110 Average Exchange Index (7/1/2008 = 100) 100 90 80 70 60 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Asia (100.1) ECA (79.1) LAC (100.1) MENA (91.5) SSA (88.9) Mature Markets (103.9) Note: Countries included in the regional index: Asia: China, India. Indonesia, Malaysia, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam; ECA: Croatia, Hungary, Kazakhstan, Poland, Romania, Russian Federation, Slovak Republic, Turkey and Ukraine; MENA: Egypt, Lebanon, Morocco and Tunisia; SSA: Kenya, Nigeria and South Africa; LAC: Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Peru and Uruguay; Mature Markets: US, Euro and Japan. Sources: Bloomberg and staff calculation. 8
Credit Ratings, Market Indicators and Country Flows from EM Bond Funds Long Term Sovereign Foreign Currency Debt Ratings: More Upgrades Fitch upgraded Romania s credit rating into investment grade territory, to BBB- from BB+. Meanwhile, Sri Lanka was upgraded a notch by Fitch (BB- from B+) and Uruguay upgraded by S&P (BBB- from BB+) and by Fitch (BB+ from BB). Credit ratings and rating changes in 2011: Region Country Long term sovereign credit ratings Rating changes from Moody s S&P Fitch Moody s S&P Fitch G7 and Euro region U.K. Aaa AAA AAA Japan Aa2 AA- AA AA U.S. Aaa AAA AAA Canada Aaa AAA AAA Europe Hungary Baa3 BBB- BBB- Poland A2 A- A- Russia Baa1 BBB BBB Slovakia A1 A+ A+ Turkey Ba2 BB BB+ Croatia Baa3 BBB- BBB- Kazakhstan Baa1 BBB BBB- Romania Baa3 BB+ BBB- BB+ Ukraine B2 B+ B Asia China Aa3 AA- A+ India Baa2 BBB- BBB- Indonesia Ba1 BB+ BB+ Ba2 BB Malaysia A3 A- A- Philippines Ba2 BB BB+ Ba3 BB Thailand Baa1 BBB+ BBB Pakistan B3 B- NR Sri Lanka B1 B+ BB- B+ Vietnam B1 BB- B+ Middle East and Africa Latin America Sources: Bloomberg. Egypt Ba3 BB BB Ba2 BB+ BB+ Morocco Ba1 BBB- BBB- Nigeria NR B+ BB- South Africa A3 BBB+ BBB+ Kenya NR B+ B+ Lebanon B1 B B Tunisia Baa3 BBB- BBB- Baa2 BBB BBB Argentina B3 B B Brazil Baa2 BBB- BBB Baa3 BBB- Chile Aa3 A+ A+ A Colombia Baa3 BBB- BBB- Ba1 BB+ Mexico Baa1 BBB BBB Peru Baa3 BBB- BBB- Costa Rica Baa3 BB BB Uruguay Ba1 BBB- BB+ BB+ BB Venezuela B2 BB- B+ 9
Market Indicators: Selected indicators in July and changes in 2011: Region Country 10 year Govern ment EMBIG Sovereign Spread Bond Index Changes Yield (%) value (YTD, GEMX Unhedged Index Total Return Index Changes (%, YTD) 5 year CDS (bps) Market Capitalization Value (US$ bn) Changes (%, YTD) Exchange Value per Changes USD (end period) (%, YTD) (bps) bps) Europe Hungary 7.6 325-20 126.6 19.0 311 30.5 9.5 187.40 11.1 Poland 5.9 180 29 104.4 10.5 166 208.5 10.6 2.78 6.7 Russia 6.0 218-6 109.6 15.9 142 1093.2 9.4 27.60 10.6 Slovakia 4.1 123 5.5 23.2 20.93 7.5 Turkey 5.4 234 57 123.8-6.9 193 260.6-13.2 1.69-8.6 Croatia 313 29.6 19.1 5.18 6.5 Kazakhstan 297-27 166 17.5-6.5 146.47 0.6 Romania 115.5 13.5 240 21.4 32.5 2.93 9.1 Ukraine 479 18 450 24.5-31.9 8.00-2.0 Asia China 4.1 163 37 124.0 3.3 87 3,854 2.5 6.44 2.4 India 8.6 111.6 2.8 1,498.4-8.0 44.20 1.2 Indonesia 7.3 172-11 185.6 17.6 133 436.3 22.3 8,506 5.6 Malaysia 4.0 149 32 122.5 6.3 92 440 8.3 2.97 3.1 Philippines 159-4 128.3 7.4 132 171.2 8.2 42.13 3.5 Thailand 4.1 122.4 1.1 123 309.9 12.6 29.76 0.9 Pakistan 14.0 889 235 37.5-2.7 86.55-1.0 Sri Lanka 9.1 311 21 126.0 7.3 22.6 15.2 109.45 1.4 Vietnam 12.6 363 40 337 31.2-18.7 20,583-5.3 Middle East and Africa Egypt 14.4 324 103 118.0-1.6 65.2-22.9 5.96-2.5 Morocco 111.3 8.2 64.3-5.4 7.88 5.9 Nigeria 318 106.9 2.4 49.5-3.4 153-0.7 South Africa 8.7 168 23 163.0 2.7 125 514.0-4.0 6.69-0.9 Kenya 86.7-25.7 11.3-20.7 90.95-11.2 Lebanon 338 68 9.8-10.3 1,512.95-0.8 Tunisia 9.7-5.8 1.37 4.8 Latin Brazil 13.2 160-29 167.7 12.5 114 1,469.9 1.7 1.55 7.1 America Chile 6.3 121 6 128.1 5.9 71 324.5-4.7 457.75 2.2 Colombia 7.9 132-40 162.6 9.3 112 201.7 0.7 1,778.4 8.0 Mexico 7.4 159-14 124.6 11.2 111 462.5-6.9 11.73 5.4 Peru 6.6 159-6 136.6 3.7 123 101.5-11.3 2.74 2.5 Argentina 592 85 594 55.7-7.5 4.15-4.1 Costa Rica 137.3 10.1 505 1.6 Uruguay 171-17 142.8 13.5 18.4 8.2 Venezuela 1,123 9 962 5.1 8.5 Mature US 2.8 42 15,843.5 2.7 Markets UK 2.9 74 3,488.7 4.6 0.61 5.2 Japan 1.1 91 3,976.9-0.5 76.76 5.7 Euro 2.5 0.69 7.5 Germany 64 Sources: Bloomberg, Markit and staff calculation. 10
Country Flows from EM Bond Funds: In the past 24 months, EM bond funds received net inflows of US$82.5 billion, according to the EPFR 1 monthly report. Those funds invested US$76.6 billion, or about 92.8%, into 23 GEMX-tracked countries 2. However, most of this amount was concentrated in just a few countries. The five countries that received the most inflows were Brazil (US$ 13.4 bn), Mexico (US$ 10.3 bn), Indonesia (US$ 8 bn), Russia Federation (US$ 7.7 bn) and Poland (US$ 6 bn). These five collectively received US$ 44.4 billion investment from EM bond funds, and this amount makes up more than half of inflows to all EM bond funds during the period. Continuous and large inflows into only a few EM economies pose challenges for policy makers in those countries due to the risk of an asset-price bubble and of a sudden reversal of flows. Major EM country flows from EM bond funds (2009Q3 2011Q2) Brazil (US$, 13.37 bn) Mexico (US$, 10.27 bn) Indonesia (US$, 8.01 bn) Russia (US$, 7.71 bn) Poland (US$, 6.01 bn) South Africa (US$, 4.88 bn) Turkey (US$, 4.57 bn) Malaysia (US$, 4.14 bn) Hungary (US$, 3.01 bn) Peru (US$, 2.78 bn) Colombia (US$, 2.78 bn) Philippines (US$, 2.74 bn) China (US$, 1.28 bn) Thailand (US$, 1.25 bn) India (US$, 1.19 bn) Uruguay (US$, 1.14 bn) Chile (US$, 1.0 bn) Sri Lanka (US$, 0.73 bn) Egypt (US$, 0.48 bn) Morocco (US$, 0.13 bn) Romania (US$, 0.07 bn) Nigeria (US$, 0.07 bn) Costa Rica (US$, 0.03 bn) 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 Source: EPFR. - 2 4 6 8 10 12 14 US$, bn Note: Countries included Asia: China, India, Indonesia, Malaysia, Philippines, Sri Lanka, Thailand; ECA: Hungary, Poland, Romania, Russian Federation, Turkey; SSA/MENA: Egypt, Morocco, Nigeria and South Africa; LAC: Brazil, Chile, Colombia, Costa Rica, Mexico, Peru, Uruguay. 1. EPFR Global, a subsidiary of Informa plc (LSE: INF), Tracks both traditional and alternative funds domiciled globally with $14 trillion in total assets and provides fund flows and asset allocation data to financial institutions around the world. 2. Kenya was excluded due to lack of data in EPFR. Sources: EPFR (Emerging Portfolio Fund Research) and staff calculation. For questions or more information, please contact Ying Lin (x33869, ylin@worldbank.org); Ketut Ariadi Kusuma (x84987, KKusuma@ifc.org) and Catherine Anne Hickey (x34205, CHickey@ifc.org). 11