Markets are not usually very willing to think about when problems come. This is the only way to understand indiscriminate sales of emerging economies’ assets in last days, although they are countries going through absolutely different situations.
Last Friday’s contagion pulled downwards such different assets as Brazil Stock Exchange, Argentinian or South African currency , or even Indonesia’s bonds. On Monday, the Ibex fell again by 1.1% losing 6.7% points in just six days, which means its hardest time in past twelve months.
How long will this trend continue? Experience suggests that when panic spreads, investors just consider the sell button. They distinguish only in second round, once fears have gone away. This is when each countries’ economic circumstaces are really valued.
Main countries under markets’ focus are, for different reasons, Argentina, Ucrania, Turkey, Thailand, Brazil and China.
The weakest link of the chain is Argentina. Its currency crisis is damaging Spanish Stock Exchange because of that country’s companies strong presence in Ibex. Peso has been devaluated by more than 20% against dollar since year 2014 began, and which is worst, its price could fall even more if Argentinian authorities decide to stop intervening exchange rate.
In Europe, big affair is Turkey. This country has moved from being one of the favourite destinations for investment and tourism to demanding currency inflows to face its bulky external deficit. Turkish lira has dropped 16% since mid December and as a consequence its central bank has been forced to intervene to stop capital outflows.
In Asia, China’s troubles to maintain growth rates high are increasingly growing. Investors also fear that country’s financial bubble can burst at any moment. On the other hand, Brazil has still to digest its economy structural changes.
This is the disturbing scenario US Federal Reserve’s members will find when they meet on Wednesday to decide if starting or not the orderly withdrawal of monetary stimulus. If they take into account an international angle, it is very likely to see a postponement of it. However, if they decide under an international key, it is also possible to have another surprise this week.