Emerging Markets Then and Now

In late January, emerging-market investors ran for the exits – again. The mere possibility of Fed tapering sent them scurrying in June 2013, while the actual start of tapering and weak economic data out of China triggered the most recent selloff. 

 

The MSCI Emerging Market Index is off nearly 6% since the beginning of 2014, and currencies from the South Korean won to the South African rand have plunged relative to the dollar.

 

But panic in these markets is nothing new. And the macroeconomic factors driving investor flight in 2014do share some similarities with those that sparked the Asian financial crisis in 1997. The dollar is strong, the yen is depreciating, and commodity prices are falling – none of which is particularly good for emerging market economies. 

 

Both in the late 90s and today, a period of prolonged low interest rates in the US prompted investors to buy stocks and bonds in emerging markets, only to see them reverse course when American real interest rates started rising again.

 

At the same time, some very important difference between now and 1997 lead Credit Suisse* to believe that the most recent events will not develop into a full-blown crisis. 

 

Using Credit Suisse as its source, The Financialist highlights what has gotten better in emerging economies since the Asian financial crisis, as well as what has taken a turn for the worse.

 

_{*Credit Suise’s coverage of global emerging markets covers: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Hong Kong, Hungary, India, Indoesia, Israel, Korea, Malaysia, Mexico, Philippines, Peru, Poland, Russia, Singapore, South Africa, Taiwan, Thailand, Turkey, Ukraine, and Venezuela.}