EM assets and currencies have been hit by market turmoil stemming from concerns over central bank exit, higher yields in developed economies and unrest in the Middle East.
EMs will for sure remain sensitive should market turmoil continue or escalate, in particular countries which are highly dependent on external finance (such as Turkey, India, Indonesia and South-Africa)
However, we do not expect a large-scale EM crisis similar to previous episodes of EM stress (e.g. Latin America debt crisis, Asia crisis), for several reasons.
First, EM’s shock resilience has risen thanks to better policies and improved fundamentals. Second, (net) capital inflows have fallen in GDP terms, while their composition has become less risky. Third, tougher financing conditions for EMs will be offset by improving export prospects to developed economies.