Emerge, Splurge, Purge

Multinational makers of phones, cars, beverages, and household products of all types have long eyed the emerging markets – the “geography seduced everyone,” suggests the Economist. Then the US Federal Reserve announced in mid-2013 that it would reduce bond purchases. Currencies of emerging economies in India, Turkey and South Africa fell in value along with a drop in consumer demand. The Economist divides multinational firms into three categories: those that face a gradual slowdown in profits; cyclical, capital-intensive firms that face a more abrupt drop in profits; and firms with highly specific products, whether luxury goods or coal, that confront new regulatory controls whether it’s an anti-corruption campaign and pollution controls in China or a crackdown on alcoholism in Russia. “Those firms with mismatches – costs or debts in firm currencies but sales in depreciating ones – face a nasty squeeze,” notes the Economist. “The emerging world’s troubles are not as bad as in 1997-98. But the exposure of rich-world firms is far higher than then.” - YaleGlobal