Emerging markets: All fall down

Firms in developing countries struggle to escape their roots STOCKMARKET bubbles often take a genuine improvement in economic or corporate performance, and then vastly overestimate its effect. Equity investors in emerging markets must wonder if they have once again been suckered into giving developing countries the benefit of the doubt. Prices have fallen by almost half this year. On October 6th emerging-market shares recorded their biggest one-day fall in at least 20 years, prompting all-too-familiar scenes of chaos followed by enforced inactivity, as trading at some bourses was suspended. For bullish investors one attraction of emerging economies was the fact that they had started with better public finances and balance-of-payments positions than in previous cycles. How resilient those positions are is now being tested, as plunging commodity prices sap export earnings and capital flows dry up. Even sound economies may still be dragged down. As Stephen Jen, an economist at Morgan Stanley, points ... (link)