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Emerging Markets: Countries at risk amid the global credit crunch

Fri, Oct 17 2008, 08:29 GMT
by Lars Christensen, Lars Rasmussen, Flemming J. Nielsen

Danske Bank A/S

The credit crisis is spreading and after the economic and financial collapse in Iceland, the markets are asking the question - which country will be the next to fall? The markets seem to have decided that Hungary will be the next 'Iceland' and the Hungarian forint has plummeted in recent days. However, there are other countries that share some unpleasant similarities with Iceland.

In this note we list 15 countries that we think are in the 'danger zone' in the present environment. That is not to say that these countries will undergo the same fate as Iceland, but they are all at risk of a significant slowdown in the economy and of increased financial distress - as we have seen in Iceland and Hungary recently.

We focus on three factors when deciding which countries should be included in the 'danger zone': • Large current account deficit, high credit growth in recent years, asset market bubbles, large reliance on foreign currency funding

• Increased political risks - both domestic and geo-political

• Commodity exporters that failed to used to the 'good years' to save for the bad years Once again, it is not a given that these countries will undergo a similar collapse as Iceland, but we think market participants should be very careful in these markets.

Below we list the countries with a few key facts on each. There is no ranking of the countries and it is not an 'Iceland look-alike contest', but rather a general list of countries with heightened risks in the present deleveraging environment.

• Download full Research with charts

Published on  Fri, Oct 17 2008, 08:40 GMT