Behind the Stocks Crash

WSJ provided a background recently to the fall in share prices in emerging markets:

While emerging markets haven’t suffered such painful losses since the 1997-1998 Asian financial crisis, analysts say the force behind the recent selloffs isn’t the same. At that time, developing countries succumbed to problems largely of their own making, including low foreign-currency reserves and high levels of short-term dollar debt that forced many of them to devalue their currencies. But over the past few years, most have strengthened their economies, boosted reserves, reduced foreign-currency debt, and now, with some exceptions, have more freely traded currencies.

This time around, actions outside the developing world are the primary driver behind the selloff. Most notable has been the change in the developed world’s interest-rate outlook that has damped interest in emerging-market stocks.

For export-driven economies like those in Asia, a slowdown in large consuming countries, especially the U.S., would have a direct impact on their own growth prospects.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.