Emerging markets turmoil returned with a vengeance this week, and it’s more than a simple “taper tantrum” this time around.
Years of strong portfolio inflows into emerging markets may finally be coming home to roost.
For more on this, see highlights of my report below, followed by a link to the full U.S. Outlook, delivered on August 17.Key observations:
- Emerging markets were a logical destination for investors searching for yield in a low-interest-rate world.
- Economic and fiscal policies in countries like Turkey have made their economies especially vulnerable to a classic balance of payments/currency crisis.
- The emerging markets financial contagion to date has not yet reached a level that will materially hurt the U.S. economy over the near term or deter the Federal Reserve from raising interest rates again in September.
- But the contagion could develop into another important headwind for the U.S. and global economies in 2019.
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