- The current slump in emerging market stocks and currencies has reached “crisis proportions” the Institute of IIF warned
The Washington-based finance industry body said China’s woes had been a key catalyst in the fast-moving rout, which has seen MSCI’s global emerging market stocks index slump 40%.
Vast swathes of emerging market currencies have also taken a battering, but rather than just making countries more competitive, for some it has created terms of trade and inflation problems.
“The decline in equity and currency values across a range of emerging markets has reached crisis proportions,” the IIF said, adding that emerging market bond markets could also soon come under pressure.
The current problems had compounded the strains of lacklustre worldwide growth and with many developing countries’ economic models unbalanced and unsustainable, the problems were likely to last for some time.
Even if the Federal Reserve were to hold off from raising US interest rates in September – another major uncertainty contributing to recent emerging market market volatility – it was only likely to offer “short-term relief,” the IIF said.
“The deepening monetary divergence between the US, the UK and the rest of the world is likely to lead to further bouts of volatility.”