Stampede in Emerging Markets

By Isaac Cohen*

Last Friday two concerns, a report on a slowdown in manufacturing in China and the expectation of monetary policy tightening in the United States, unleashed capital flight and consequent falls in the markets and currencies of most emerging markets.

The rout in emerging markets, from Buenos Aires to Istanbul, also affected the markets of advanced economies, with the Dow Jones Industrial Average falling 2 percent. Last week’s fall in the markets of advanced economies contrasted with last year impressive gains, such as the 30 percent gain in the stock market of the United States.

However, most severely hurt were the markets and currencies of those economies already experiencing instability for other reasons, such as political turmoil in Turkey, or inflationary concerns in Argentina. Despite central bank intervention, on Friday, the Turkish lira fell almost 2 percent, while Argentina’s peso finished the week with a  16 percent fall and the government easing controls on dollar purchases.

Even the currencies of healthier emerging economies were challenged, mainly because some of them export commodities to China. Such was the case of the South African rand, the Peruvian sol, or the Chilean peso. Several market operators confirmed they liquidated positions in currencies from countries that export heavily to China.

*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC Washington Office.

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