Emerging Markets Have an Overlooked Strength
Developing nations are in a better position than ever to defend their currencies.
Foreign-exchange reserves top $3 trillion.
Photographer: Scott Eells/Bloomberg
There’s a chorus of talking heads predicting a crisis in emerging markets, some quite stridently. Nobel Prize-winning economist Paul Krugman went so far as to say the current slump bears some resemblance to the Asian financial crisis in the late 1990s that roiled global markets.
If that sounds familiar, it should. Plenty of smart people said the same thing back in late 2014 and 2015, when the MSCI EM Currency Index tumbled 15 percent as the Bloomberg Dollar Spot Index soared 22 percent. Then, as now, the fear was that the stronger greenback would make it impossible for borrowers in emerging markets to pay back the trillions of debt they borrowed in dollars, sparking mass defaults and triggering a global crisis.