Capital Flights: A Fact

Bovespa going down by 18% in June 2013 indicates a lot when you read it along with the report that the Brazilian IPO s has given only losses to its investors since 2005. The rapid capital flight is keeping the country on the verge of a breakdown and internal issues as we witnessed during the Confederation Cup series. This is even influencing the global markets.

As per June 2013 reports investors have pulled $1.5 billion out of emerging market bond funds. Brazil’s primary budget balance went down these years and the reasons behind the capital flights could be the excess domestic credit, and high loan-to-deposit ratio of 1.6. Brazilian banks which benefited from the once capital inflows are affected by these outflows, even the metal and mining sector are under threat.

Investors foresee a hard landing of Chinese economy and the most capital flights are feared to occur by late 2013 and early 2014 and people are careful about the failing forecasts. As the Fed tightens the measures Chinese economy is likely loose more capital even though they keep their currency undervalued. Looking at this situation IMF, in its July update has warned China on this capital flight on the backdrop of Chinese government deciding on opening capital accounts and allowing the Chinese to invest in securities abroad.

An amount of $71 bn will be taken out of Russia in 2013 according to the reassessment done by The Russian Ministry of Economic Development. In 2012 the amount of capital exited from the country was $56bn.

Ailing Indian currency is affected by the massive capital flight which country witnessed late August. The RBI data say FDI worth $7.6 billion was invested in between April and June 2013, but at the same time $11.2 billion flowed out of the country. Finance Minister is expecting more and more FDI but the capital flight remains unsolved.

Major Capital flights

The phenomenon of capital flight is not limited to these countries but it is omnipresent.
In 1998 Indonesia went through a capital flight which made the country unstable. The 2009 UK capital flight was due to the tax laws. The capital flight in 2006 from France that too on the base of reviving tax laws are the major capital flights than which happens in the Euro area especially in Greece and Spain.