EM Markets sale-off spreading to DM

6 September, 2018

The current weakness on the developing countries financial markets is the longest since 2008. The similarities go further than that: as well as 10 years ago, the aggravation falls in autumn, when the funds actively review their investment strategies, and the reasons are – chronic deficits and high level of debt.

However, then the source of the problems was developed countries, and at one time there was a popular idea of decoupling, proving that the problems of the developed countries would not have a significant negative impact on the developing ones.

History showed how erroneous these hypotheses had been, and the financial world has proved to be complex and interconnected, and all the countries have not been spared the echoes of the global financial crisis. Nevertheless, developing countries recovered faster, providing an increasingly serious share of the world economy growth in subsequent years.

It is likely that this time, in case of serious problems on the financial markets of large developing countries, the developed markets will be able to maintain immunity only until a certain point when the weakening of the markets will be relatively organized. The supporters of a limited influence on the markets of developed countries may also recall that the Asian crisis of 1997 did not cause any recessions in developed countries. But in 21 years the economies of developing countries have multiplied several times.

10 years ago, countries were coping with the global crisis through joint and coordinated solutions, while the growth of populism and protectionism in politics in recent years risks exacerbating local problems and result in the loss of valuable time to find joint solutions.

Under these circumstances, the pressure on the global stock markets may only grow in the near future. S&P500 index lost 0.5% on Wednesday, increasingly keeping away from the historical highs achieved a week earlier, despite the strong economic data from the U.S. MSCI has decreased on Thursday morning by 1.8% in the area of one-year lows. The dollar index remains near 95.10 since the beginning of the month, having fallen by 0.2% on Wednesday. However, the development of pressure on EM market is able to develop the offensive of the American currency as haven.


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