In this short note, we provide a graphical overview of the market movements in emerging markets and commodity exporting economies since the beginning of the year. We focus on the FX and equity markets (in local currency).
The picture is clear – we have seen a broad-based sell-off in these markets. The dominant trigger is likely to have been worries about Chinese growth and the financial situation in China. However, local factors have also contributed to the ‘EM hurricane’.
Overall, we can indentify three characteristics of the sell-off. The hardest hit countries are those with large external imbalances (such as Turkey and South Africa), commodity exporting countries (like Brazil and Russia) and countries with rising domestic political/regime uncertainty (such as Ukraine and Turkey).
Argentina is an outlier. While the peso has weakened dramatically, it is not the same story as with most of the other EM countries to have been hit by the sell-off. In Argentina’s case, it relates to significant inflationary monetary policies due to de facto monetisation of public debt.
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