Emerging markets are faced with several factors which could lead to a third wave of a financial crisis - according to Goldman Sachs.
This time I am inclined to agree due to the following factors:
1) Collapse of commodity prices
2) Collapse of emerging currencies
3) Assets bubbles in the run up to the aforementioned collapse
4) Household Debt to GDP which is the highest in recent years
5) Household Debt to Disposable Income which is also the highest in recent years, especially Malaysia, Thailand, South Korea and Singapore
Add in all the above with deteriorating GDP growth in many emerging economies, and you will have the perfect storm.
Recently IMF has cut the global growth outlook to 3.1% from 3.3%.
In a global slowdown, one has to ask, how are those countries saddled with huge debts are able to meet the debt repayments. Not only that, servicing debts denominated in US$ has become more expensive due to the depreciation in the value of emerging currencies. With the prospect of the Federal Reserve hiking rates, the cost of refinancing too would have increased in anticipation of such a hike.
If there's anytime for portfolio diversification or increase your cash holding, this is perhaps a time to consider.
Here's the link: http://www.cnbc.com/2015/10/12/is-em-turmoil-the-third-wave-of-the-financial-crisis-goldman-thinks-so.html
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