The risks of market contagion cannot be ignored

There is a simultaneous slowdown in the US, China, and emerging markets. Even a mild recession could tip the world back into deflation like Japan's. 

Fragile recovery, deflation fears and panic selling of emerging markets' financial assets by investors have combined in recent weeks to undermine the tentative, but growing,confidence the global economy was on the road to recovery.

Commentators have been quick to reassure market participants that the sudden loss of altitude, particularly in the emerging market (EM) equities and currencies, is a temporary blip.

Depending on your definition of "temporary", this assessment of the current situation is quite defensible.

EM assets have been under pressure since the US Federal Reserve began tapering its quantitative easing program late in 2013. Tapering has had the effect of encouraging investors to rotate their money out of EM markets back, mainly, into the US.

Read the full article: The risk of contagion cannot be ignored (subscription required)

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Max Walsh

Contributor

Max Walsh was for many years one of Australia’s top economic and political commentators, highly regarded as a journalist, author and broadcaster. Throughout his career, Max was involved in all dimensions of the media industry, which has encompassed positions with two of Australia’s largest publishing companies and television networks.

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