Europe's Financial Struggles Threaten Emerging Markets Boom

Title: The Global Financial System's Impact on the Emerging Boom

The Hidden Cost of a Seizing European Financial System

A looming threat to the global financial system is causing ripples in the emerging world, as the seizing up of European financials clogs the pipelines of credit.

The Global Pipeline of Credit for Emerging Markets

Since the last financial crisis, stronger banks in developed countries have sought out lending opportunities in the emerging world. These flows account for 5% of emerging market GDP, making them a dominant source of new credit creation outside China.

Europe's Role as a Lender to Emerging Markets

About 75% of the cross-border financing of emerging credit comes through Europe (Euroland, UK, Switzerland). However, these flows are at risk as European financials struggle to maintain liquidity.

The Resilience and Risk in the Emerging World

Reserves in most of the emerging world are higher than before the last crisis, and access to official liquidity programs is more certain. On net, this disruption in the global financial system puts the emerging world’s boom at significant risk in the short term.

Portfolio Implications: Assets Affected by the Disrupted Global Financial System

For investors, the risks and opportunities lie with assets like C (Citigroup Inc.), EEM (iShares MSCI Emerging Markets ETF), GS (Goldman Sachs Group Inc.), UNG (United States Natural Gas Fund LP), and BAC (Bank of America Corporation). As European financials struggle, emerging market assets could face volatility. Conversely, opportunities may arise for those willing to navigate the risks.

Actionable Insight: Bracing for Impact in the Emerging World

As the aftermath of the last crisis unfolds, investors should be mindful of the global financial system's impact on emerging markets. Diversification and risk management strategies will be crucial in navigating this volatile landscape. Stay informed, stay nimble, and prepare for potential disruptions.