So next time someone says emerging market currencies are a storm in a tea cup, you can remind them of two things. First, you can point out that slower growth, flawed development models, excessive reliance on credit and foreign capital inflows, and weak institutions constitute a rather different cocktail. Secondly, you can emphasise that raising interest rates to defend your currency doesn’t always work. It might just exacerbate the underlying problem of weak growth, low returns to investment, and political tension, and so spur another bout of capital flight, and so on.
At some point, a buying opportunity for the brave and fleet of foot in emerging markets is as certain as night follows day. But the emerging market growth crisis is still in Act 1 of a rather long play.href=’http://www.prospectmagazine.co.uk/prospector/are-emerging-markets-a-storm-in-a-teacup-or-a-storm-thats-brewing/#.UzQe89y1zwP’>Are Emerging Markets a storm in a teacup, or a storm that’s brewing?.