Policy Concerns
In many developing economies, politics and policy are also big worries. In recent weeks, Chinese policy-makers have taken unprecedented steps to shore up the nation’s stock market, leaving many investors wondering what Beijing might do next. In Brazil, President Dilma Rousseff, besieged by a sweeping corruption scandal, has back pedaled on efforts to cut the budget, potentially jeopardizing her country’s credit rating.
Granted, emerging economies are in far better shape than they were when past crises hit. While many companies have taken on debt, governments overall have reduced borrowing relative to their economies.
Still, many analysts see more trouble ahead. Fourteen of 23 major emerging-market currencies are forecast to decline against the dollar by the end of June 2016, according to data compiled by Bloomberg. Forecast earnings for companies in the MSCI index have fallen to their lowest since the end of 2009.
“It’s a slow-motion crisis,” said Bhanu Baweja, London- based head of emerging market cross asset strategy at UBS Group AG. “Real challenges lie ahead of us.”