Wall Street Journal: Emerging-Markets Rout Boosts Contagion Fears

Stocks in emerging economies around the world like Brazil, Turkey and Indonesia have fallen dramatically in recent weeks – mostly driven by the strong US dollar and high US bond yields. Currencies and investments in emerging market bonds also remain low despite global economic growth. Countries like Argentina, Turkey, and Italy accumulated debt when interest rates were at record lows and are now vulnerable. For many, debt and commodity prices are tied to the US dollar. The US Federal Reserve raised interest rates at its June meeting and signaled that two more rate hikes are in store, and emerging markets face a difficult task in repaying their dollar-denominated debt. Economic policies that spur US success and economic growth are less lasting for emerging economies. Nevertheless, the global economy is expected to grow at 3.1 percent this year, according to the World Bank, and analysts expect developing markets to survive the turbulence as long as there are no major disasters or surprises. – YaleGlobal