Here’s an important way of thinking about what’s going on in emerging markets right now.
From The Guardian:
Stephen Jen of currency hedge fund SLJ Macro Partners said: “Many of these emerging-market economies [including Turkey] are cornered: they have to choose between defending the exchange rate, fighting inflation and supporting growth. Sudden stops in capital inflows tend to force countries to face lose-lose situations.”
India, Indonesia, South Africa and Brazil, which were grouped with Turkey recently as “the Fragile Five” by Morgan Stanley, are in the same boat, as are Argentina and Russia. Each has its own special circumstances, but they share problems that have left investors disenchanted.
There’s no obvious play here for emerging markets.
Faced with weak growth and domestic strife, investors are yanking their money out of these economies. This is causing currencies to collapse, threatening inflation. Central banks, like those in Turkey, South Africa and India, can raise rates, but a sharp hike in rates will slow the economy.
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