According to Research Analyst Gareth
Berry at UBS, "We expect that the theme of capital flight out of
the Eurozone will continue to run for some time in the wake of the
Cyprus bailout." The immediate focus, of course, is on deposit
flight but capital controls will be expected to do their job for
now. Of course, the images of bank runs and deposit flight are
powerful, but we expect capital flight in the form of investment
outflows is even more pernicious.
Deposit flight exposes funding gaps on a banking-sector level, but
capital outflows, be they via portfolio flows or FDI reversals,
tend to expose the funding gaps of an entire nation, a fact that
emerging markets can strongly attest to. As timely data is still
rather difficult to come by, we use our Equity Flow monitor from
last week to see if asset managers are now liquidating underlying
investments in the Eurozone, especially taking into account that
our FX Flow Monitor has been showing such trends for several weeks.