It’s beginning to look a lot like a crisis

The emerging-market sell-off has all the hallmarks of contagion.


From MarketWatch:

Emerging Markets, Now More Crisis-y

Financial crises are sort of like snowflakes: No two may be exactly the same, but they sure look enough alike that you can tell what they are.

Emerging-market currencies and stocks tumbled again today, part of a long selloff that increasingly has a crisis-y feel. Satyajit Das lays out all the hallmarks of a standard EM crisis: “a large dose of debt and an associated domestic credit bubble, including misallocation of capital into uneconomic trophy projects or financial speculation. Then add: a weak banking sector, budget deficits, current-account gaps, substantial short-term foreign-currency debt and inadequate forex reserves. Season with narrowly based industrial structures, reliance on commodity exports, institutional weaknesses, corruption and poor political and economic leadership.”

Remind you of any country in particular? It could apply to Turkey, certainly, where inflation has spiked and a central bank of questionable independence is waiting too long to do anything about it, writes Marcus Ashworth.

It could also describe Argentina under past leadership, which has left such a mess for its current president that the IMF must soon bulk up its relief package or watch the crisis grow, warns Mohamed El-Erian. That said, Argentine President Mauricio Macri has harmed market confidence more than he has helped, writes Mac Margolis

Continue reading at MarketWatch…

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