Depending on how the excess flows are handled, it can lead to appreciation of the currency making exports less competitive, build up asset price bubbles, fuel inflationary pressures or drive up interest rates.
What exacerbates the problem is that these flows are prone to “sudden stops and reversals” which is to say that they can reverse direction and go out of an economy suddenly, as happened during the crisis, and that can dent financial stability. Another big issue in the external sector is the exchange rate.