Eq: EMs

(Istanbul)

Most sources, including FINSUM, have been concluding that the emerging markets flare up centered on Turkey, would not develop into a correction or financial crisis for developed markets. Today that position is looking weaker, as stocks fell sharply across the world yesterday, and commodity markets got routed. Emerging market stock indices have fallen back into a bear market. While EMs fell big, global markets saw share plunges exacerbated by a dismal earnings report for one of China’s big tech companies, which then seeped into tech shares globally.


FINSUM: The narrative here is that Turkey sparked a big selloff and now fears over China will continue to drag EMs down. This could be the start of a global recession, but perhaps it will not be accompanied by huge losses in developed markets.

(Istanbul)

A lot of investors are worried that the turmoil in Turkey could spark a global financial crisis. In particular, Turkey’s weak position could spread to European banks, letting the situation balloon from there. However, the reality is that such fears are overblown, according to a credit analyst. Europe’s banks are actually in a strong position and can absorb losses from Turkey, so there does not seem to be any contagion to spread. Turkey’s problems are largely self-inflicted and unique as well, so it is hard to see all EMs succumbing to the panic.


FINSUM: From an American investor’s standpoint, the Turkey situation should not be very concerning as it does not seem to have much direct relationship to the US economy or markets. Hence our shares rising while Europe’s are falling.

(Istanbul)

Investors may be watching the markets anxiously, and with good reason. Turkey is in the middle of a full blown financial crisis, and the threat of it leaking into western markets via European banks seems tangible. Emerging market stocks are down 18% from their peak in January and there is pressure on other EMs like South Africa, China, Russia, and India. However, the worries over a full-scale emerging markets meltdown seem overdone, especially considering the economies of EMs are actually quite strong and healthy at the moment, which should keep things from falling into dire straits.


FINSUM: EMs currently have good currency reserves and many are running budget surpluses, so they are not entering this period of turmoil in weak shape.

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