Forex Flash: Capital flight from Spain – Nomura
FXstreet.com (Barcelona) - Overall, Eurozone flows have started to normalize lately, but capital flight from Spain specifically has accelerated explain Nordvig and St-Arnaud of Nomura.
They proceed to explain that over the past 3-4 months "a new and dangerous phase of capital flows had begun, one in which Eurozone investors started to accumulate 'safe' foreign fixed income assets during a period of risk aversion." Typically they had found that in previous bear market phases, EU investors would be in repatriation mode but that this trend had ceased. However, whilst this trend looks to have normalized following the crisis' escalation in May and June, Spain is one area still suffering from this affliction.
In Spain, "portfolio outflows and other investment outflows represent about 20-30% of GDP" and "the sheer size is worrisome". They conclude, "we are witnessing very large scale capital flight from Spain, both as foreigners are selling their Spanish Holdings and as depositors in the Spanish banking sector are withdrawing deposits from the Spanish banks. While it is difficult to determine the implications of this on the euro, it suggests that severe tensions are building within the Spanish banking system, with negative implications for Spanish growth."
The Nomura economics team believes that Spain will not be able to avoid a full blown bailout and are not sure whether it will be enough to restore long term confidence in the beleaguered nation.
They proceed to explain that over the past 3-4 months "a new and dangerous phase of capital flows had begun, one in which Eurozone investors started to accumulate 'safe' foreign fixed income assets during a period of risk aversion." Typically they had found that in previous bear market phases, EU investors would be in repatriation mode but that this trend had ceased. However, whilst this trend looks to have normalized following the crisis' escalation in May and June, Spain is one area still suffering from this affliction.
In Spain, "portfolio outflows and other investment outflows represent about 20-30% of GDP" and "the sheer size is worrisome". They conclude, "we are witnessing very large scale capital flight from Spain, both as foreigners are selling their Spanish Holdings and as depositors in the Spanish banking sector are withdrawing deposits from the Spanish banks. While it is difficult to determine the implications of this on the euro, it suggests that severe tensions are building within the Spanish banking system, with negative implications for Spanish growth."
The Nomura economics team believes that Spain will not be able to avoid a full blown bailout and are not sure whether it will be enough to restore long term confidence in the beleaguered nation.
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