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Why other EMs do not share Argentina and Turkey’s vulnerabilities

Weekly investor research

17 September 2018

Under which conditions are EM countries vulnerable to economic contagion via currency volatility? Two conditions have to be satisfied before currency volatility can morph into major economic malaise. First, the EM country in question must have serious macroeconomic imbalances to begin with, usually due to a long history of poor macroeconomic management. Second, the country must be unable to obtain its required funding domestically. Argentina and Turkey both fit the bill, but emphatically the other major EM countries do not. This is why the likelihood of transmission of the economic vulnerability from Argentina and Turkey to other countries via currency volatility is close to nil.

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