“In the years following the financial crisis, a grand, sweeping narrative took root in global investment circles. It held that investment flows were undertaking a reallocation that was centuries in the making, as money began to leave the debt-laden, aging societies of the developed world and enter high-growth emerging markets.
After years of struggling with their own poor finances, these up-and-coming markets were now thought to be in better shape than their wealthier peers in Europe and North America. A big run-up in emerging market stocks, bonds and currencies seemed to prove that point. Read “The Man of Steel and Ben Bernanke.”
But now a worldwide selloff in emerging markets suggests this story needs some editing. Clearly, these global investment flows weren’t solely explained by this historic turning of the tables; they were also aided by an abundance of cheap liquidity from the developed world’s biggest central banks. The recent reversal of that effect reminds us that however much emerging markets have matured, they remain vulnerable to shifts in the richer economies….”
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