INSUBCONTINENT EXCLUSIVE:
easy-money came to an end
Consider Turkey, now paying the price for its refusal to follow orthodox monetary policy; Argentina, facing a crisis of confidence just four
years of its last default; China, targeted in a trade war; and South Africa, the emerging-market proxy punished for crisis in any corner of
2 economy has a benchmark interest rate of 60 percent and inflation tops 31 percent
Economic activity fell 6.7 percent in June
New taxes announced this week to restore a balanced budget would only compound the suffering.
Argentina is targeting a primary budget
surplus by 2020 to ease its demand for foreign financing and prop up the peso, which slumped more than 50 percent this year
Whether those economically sound and highly unpopular policies can survive the next few years remain to be seen: National elections are
of gross domestic product compared with 3 percent at the worst point of 2016, it still compares unfavorably with an average 2.9 percent
surplus between 2000 and 2014
Its proximity and close trade links to Argentina mean contagion could also weigh on sentiment.
All that said, a historically low policy rate
means Brazil has plenty of room to tighten monetary policy and fend off speculative attacks on the real, the third-worst emerging-market
core economic objective: Gaining an enhanced role for the yuan as a means of international payments
Shanghai stocks have underperformed emerging-market peers in 10 of the past 12 quarters and trade near the lowest valuations in four
years.
IndiaAnnual expansion above 7 percent and a relative isolation from global economic and trade headwinds make India a consensus buy
among emerging-market investors
Oil remains the chief vulnerability: India imports 70 percent of its energy needs and crude-price fluctuations have taken its
current-account deficit to almost 2 percent of GDP.
Prime Minister Narendra Modi is seeking re-election in just eight months and victories
for the opposition Congress party in recent state and local elections have raised the possibility his support may be slipping
paralysis.
IndonesiaWhile the rupiah lost about 9 percent this year, a pittance compared with Turkey and Argentina, the Indonesian currency
is now the weakest since the 1998 Asian financial crisis
Repeated rate hikes and FX interventions by Bank Indonesia have failed to stem the depreciation.
While monetary tightening, as well as the
delay of major investment projects to save foreign-exchange reserves will slow growth, the risk of outright recession is less than in many
other countries because the economy has expanded at a clip of about 5 percent since 2014
Subdued inflation may also alleviate concern of the price pass-through of a weaker currency.
RussiaRussian assets get some of the lowest
While the country has rebounded from a currency crisis in 2014, it remains one of the first targets in an emerging-market selloff
A key vulnerability: A United States climate in which being seen as pro-Russia is politically disadvantageous
Criticism by Democrats has pushed President Donald Trump to add to existing sanctions.
Russia has a strong current-account surplus and
inflation is near a record low
That helped the central bank cut interest rates
borrowing costs since 2014
recession, driven by a slump in agricultural output
South Africa has one of the worst current accounts deficit in the developing world, with a shortfall of 4.8 percent of GDP
London-based global chief economist at Renaissance Capital Ltd
South Africa has the highest foreign-exchange turnover-to-GDP ratio among emerging markets, he said, helping explain why South Africa is
often at the forefront of developing-world routs.
TurkeyEvents during the past several months underscore the grave political risks facing
investors in the Turkish market
opposition to rate hikes and the diplomatic spat over a detained United States pastor have all dented confidence, prompting a 31 percent
collapse in the lira since the end of June, the most among emerging-market currencies
In addition, Turkey is coping with double-digit inflation and the biggest current-account deficit among major emerging economies.
Currency
depreciation may be sorely needed to help drastically cut imports and trim the current account gap.
