Turmoil in Emerging Markets: Is It 1997 All Over Again?

From the moment US Federal Reserve Chairman Ben Bernanke mentioned the word “taper” in May, markets the world over have begun to embrace a new reality. With expectations that the US Federal Reserve will soon begin to tighten monetary conditions, the Treasury Yield Curve has shifted upward by more than 100 basis points, the US dollar is appreciating after years of decline, and emerging markets — particularly those in Asia — are grappling with renewed volatility. Growth has begun slowing, interest rates have been rising, capital is fleeing, and in countries such as India and Indonesia, currencies are dropping sharply. All of which raises the question: Is a second Asian Contagion, like the one in 1997, in the offing?

Read entire blog at
http://blogs.cfainstitute.org/investor/2013/08/27/turmoil-in-emerging-markets-is-it-1997-all-over-again-2/

Yet here we are. Unfortunately for emerging markets like India and Indonesia (not to mention Turkey and Brazil), easy money in the developed world has likely created yet another credit-induced bubble that appears ready to pop. Or to switch up analogies: Money is like water. It always flows somewhere, and it’s never quite clear exactly where it will go. The resulting, inevitable malinvestment that follows in its wake is revealed only after calamity strikes.

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