Nigeria, emerging markets face stop in capital flows over Trump policies – JP Morgan

US bank JP Morgan has cautioned that if former President Donald Trump's "America First" ideas continue to gain support, emerging economies like Nigeria may experience a sizable capital flight.

A Reuters story that cited a JP Morgan remark is the source of this caution. Nigeria, one of Africa's major economies, is surely included in the report's reference to emerging markets, even though it was not directly addressed.

Emerging markets might be going through the dreaded "sudden stop" of capital flows, according to JP Morgan. The reason for this occurrence is that Trump's economic policies, such tax cuts and tariffs, boost the American economy while deterring investment from emerging countries.

According to the investment bank's research note, "net capital outflows" totaling $19 billion from developing economies—aside from China—had already been reported during the previous quarter. In the first quarter of 2025, outflows are anticipated to reach an extra $10 billion.

The bank warned that such an event should not be undervalued, saying, "To put it simply, using the widely accepted academic definition, this would signal that EM ex-China is on the verge of a sudden stop."

A "sudden stop": what is it?

Emerging economies may run out of the money they require to expand or, in certain situations, to just stay stable if capital flows abruptly stop. Analysts worry that these economies would encounter difficulties ranging from slower economic growth to more severe financial crises if they are unable to obtain capital.

According to JP Morgan, there isn't a crisis unique to emerging markets causing the current halt in capital flows. Rather, it is mostly associated with the tightening of financial conditions around the world, which is a result of Trump's economic initiatives.

The United States is now a more desirable location for investment capital because of these policies, which have increased the possibility that interest rates will remain high for an extended period of time.
"As was the case in 1998-2002, 2013, or 2015, this is not a situation where specific EM countries are under pressure and are facing balance of payments or currency crises," JP Morgan explained.

Instead, it's one of the policy uncertainties and the robust U.S. economy that pulls flows out of EM.

Furthermore, a robust U.S. economy that is rerouting global capital flows is driving the current climate rather than a bad U.S. economy that is causing a global risk-off mentality.

What follows?

Trump's future policy choices and important U.S. economic indicators like retail sales, inflation, and employment will have a significant impact on how this situation develops. According to JP Morgan, these elements may have an impact on how the Fed decides to modify interest rates.