The continued weakness in global markets as a result of slowing Chinese growth and fears that Greece will leave the euro zone, has investors wondering which countries are best prepared for a downturn.

Fixed income strategists at Bank of America Merrill Lynch looked for emerging market countries with the most room to ease fiscal and monetary policy if the situation gets worse. They found that countries running fiscal deficits and with low real interest rates are the most vulnerable to external shocks, specifically India and South Africa. They have estimated current account deficits of 3.7% and 4.7% of GDP, respectively for 2012.

This makes the Indian rupee and the South African rand the most exposed currencies to fresh waves of risk aversion…,” BofAML told clients, adding that Colombia and Indonesia are also lagging in terms of improving their fiscal balances.

The strategists found that Hungary, Russia, Chile and Korea have done the best job at improving their fiscal situations since 2009. They are also running surpluses, which could leave more room to cushion their economies.

However, since Hungary may receive a financing package from the IMF and EU, they don’t expect any fiscal easing there.

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