The danger for emerging countries: A resurgence of investor confidence in OECD country financial assets

Since 2018, there have been equity capital outflows from the United States and equity and bond capital outflows from the euro zone , and a return of capital inflows to emerging countries (excluding China). This return of capital flows to emerging countries has positive effects for these countries: renewed exchange rate appreciation and lower inflation and interest rates, resulting in a boost to growth. But these positive effects would disappear if confidence in US and euro-zone financial assets returned: capital would be withdrawn from emerging countries to be reinvested in OECD countries, and emerging countries would again be hit by the negative sequence of exchange rate depreciation followed by inflation, an increase in interest rates and a fall in demand. Strangely, financial market wariness towards OECD countries is positive for emerging countries.