There’s no need to flee emerging markets

Investors are worried that Argentina and Turkey could be the first two dominoes to fall in a wider emerging-markets crisis.

Andrew Van Sickle
By
published
in Features

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Argentina: "more naked than most of the swimmers"
(Image credit: Nikki Bidgood)

"One nation's currency crisis can trigger an entire region's recession," says James Dean in The Times. The Thai baht plunged in the summer of 1997 and the turbulence quickly spread throughout Asia. The worry today is whether Argentina and Turkey could be the first two dominoes to fall in a wider crisis.

Probably not, says Fidelity's Tom Stevenson in The Daily Telegraph. As Warren Buffett likes to say, when the tide goes out you can see who has been swimming naked. Argentina and Turkey "are more naked than most of the swimmers today". The environment for emerging markets has deteriorated rapidly in the past few months, with the higher dollar and prospect of US interest-rate rises drawing money away from traditionally risky assets. Investors become much less forgiving of "dodgy economic fundamentals" in these circumstances, and take their money out. Argentina irritated everyone by appearing to renege on a commitment to squeeze out inflation.

Turkey, meanwhile, is "up to its eyeballs in foreign-currency-denominated debt". The banks owe 60% more in dollars than just five years ago. Turkey needs foreign cash worth around 25% of its GDP to cover its debts and repayments to the rest of the world. Most other emerging markets, however, aren't nearly as vulnerable to foreign capital turning tail.

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The broader pattern now is that fiscal and external current-account deficits have been reduced and "foreign-currency funding needs and inflation are in check", says Swaha Pattanaik on Breakingviews. Investors have become more discriminating and no longer flee en masse when one or two emerging markets hit a rough patch; witness the resilience of the asset class during global market volatility in February. There is no need to run just choose carefully.

Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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