Japanese bank Nomura introduced an early warning indicator of exchange rate crises in 30 emerging markets.
Nomura's analysts expect seven countries including Sri Lanka, South Africa, Argentina, Pakistan, Egypt, Turkey and Ukraine to be vulnerable to exchange rate crises in the next 12 months, the Japanese bank said in a statement on Monday.
Based on a noise-to-signal approach, the new indicator called «Damocles» presents 30 individual country pages, highlighting the track record since 1996, together with views from country experts on how best to interpret the Damocles results.
Not One Homogeneous Group
The indicator correctly signalled, up to 12 months in advance, 67 percent of the past 54 emerging markets exchange rate crises since 1996.
Eight countries – Brazil, Bulgaria, Indonesia, Kazakhstan, Peru, Philippines, Russia and Thailand – have Damocles scores of zero. As investors focus more on emerging markets risk it is important not to lump all countries together as one homogeneous group; Damocles highlights a long list of countries with very low risk of full-blown crises.
