Turmoil has been coming to and from the emerging markets lately. Borrowing costs have been rising as funds leave these asset classes.
To address this, the analysts at Morgan Stanley published a massive 82-page report titled: “What If The Tide Goes Out?” The addresses the idea of the “sudden stop.”
What is a sudden stop? A stop or even reversal in capital flows into some emerging markets that dramatically reduces their access to international financial markets for a considerable period of time.
As the table below shows (via finansakrobat), this is not the first time the emerging markets have faced increasing difficulty tapping the capital markets.
“Most shocks that have created sudden stops in the last 30 years have not been big enough to engulf all of EM, nor did they affect systematically important countries first,” write the analysts. “Rather, it was the combination of a shock to a vulnerable economy and contagion that spread the shock to other economies sharing a common characteristic with the economy at the epicentre of the shock.”
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