Mexico is seen as vulnerable because its reserve coverage ratio, its foreign exchange reserves divided by its funding gap — the capital needed to balance its current account deficit, repay short-term funding and compensate for any drying up of foreign direct investment — is just 1.6 years, far less than the seven years of Russia, another struggling oil exporter.
Mexico’s perceived lack of “wiggle room” is exacerbated by its real interest rate of close to zero, leaving little flexibility to cut rates if its economy weakens further.
“Mexico, a country that many investors consider a safe haven, is now showing up as a high-risk emerging market,” said Mr Garcia-Amaya.
| Q1 2013 | Q2 2015 | |
|---|---|---|
| Rank 1 | Taiwan, Philippines, China, Korea, Russia | Taiwan, Korea, Chile, Philippines, China |
| Rank 2 | Peru, Argentina, Brazil, Hungary, Colombia | Russia, Thailand, Hungary, Poland, Peru |
| Rank 3 | Poland, Czech Republic, Mexico, Thailand, Malaysia | Czech Republic, Brazil, India, Malaysia, Argentina |
| Rank 4 | Chile, Indonesia, India, Turkey, South Africa | Mexico, Indonesia, Colombia, South Africa, Turkey |
| Sources: JPMorgan Asset Management; IMF; World Bank; Oxford Economics. Data as of Jun 30 2015. Rank 1=low risk, Rank 4=high risk | ||
Turkey and South Africa, both with large external imbalances and significant political risk, remain the highest risk nations, with Turkey — particularly reliant on short-term funding — now the most fragile of all.
However India’s structural reforms under Prime Minister Narendra Modi have allowed it to climb the table, with the country also a big beneficiary of lower oil prices.
