Iceland, Turkey more vulnerable to tighter liquidity

...vulnerable if there is any intensification in tight liquidity conditions.

Russia, Egypt, Ukraine, and the Czech Republic should have least to fear among a sample of 15 state from Eastern Europe, Middle East and Africa from the changing mood, the agency's Liquidity Vulnerability Index showed.

"Placing a country in the vulnerable group is not a predictor of a negative rating action, just as being in the sheltered group is no predictor of a positive action," said S&P credit analyst Moritz Kraemer.

The Index aggregates quantitative measures such as gross external borrowing requirements as a share of current account receipts, the share of current account deficit financed through foreign direct investment and the real effective exchange rate appreciation in 2007 from the average of the 1990s.

Emerging markets across the globe benefited hugely in recent years from a tidal wave of liquidity that saw investors venture further into riskier assets. But this tide now appears to be turning as the U.S. subprime crisis has hit hedge funds and banks worldwide.

"Everything depends on the policy reaction by the authorities," said Kraemer, noting that the agency had recently affirmed Turkey's rating and outlook.

S&P placed Lithuania, Lebanon, Slovakia, Poland, Hungary, and South Africa in an intermediate position on the index.

For the complete EMEA Liquidity Vulnerability Index, click on: [ID: nWLB1255]