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Europe May Be `Epicenter' of Emerging-Market Crisis, BofA Says

  • Region is more vulnerable to weakness in developing nations
  • A global, cross-asset contagion could eventually reach U.S.
The U.S. has been insulated from EM pressures so far, unlike Europe

If the current weakness in emerging markets turns into a global crisis, Europe may be its epicenter, according to Bank of America Merrill Lynch.

European stocks have underperformed lately as emerging-market currencies plunged amid tightening dollar liquidity. With its open economy and high debt levels, the region is more vulnerable to weakness in developing nations, and may be the conduit that finally spreads the contagion to U.S. shores, as Japan did in the wake of the Asian financial crisis in the late 1990s, strategist Tommy Ricketts said.