• Discussion Paper
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1.07.2019 36

Emerging Markets: Vulnerability and contagion risks... Fragile vs. anti-fragile countries

Published July 1, 2019

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Abstract


 

This article is aimed at analysing contagion within the emerging world in the past decades, and at presenting investment strategies to limit negative effects of contagion and / or to benefit from it. 

We first analyse nine very different cases of contagion (crises and sharp declines without crisis, with different triggers, with different contagion effects) which could be identified in the emerging world over the last 40 years: i) the Latin American debt crisis of the 1980’s, ii) the Mexican crisis of 1994, iii) the Asian Crisis of 1997, iv) the Russian Crisis of 1998, v) the Brazilian crisis of 1999, vi) the Argentine crisis of 1999-2001, vii) Fed tapering of QE in 2013, viii) the “boom and burst” crisis in Chinese stock markets in 2015-2016, and ix) restrictive trade and monetary policies in the United States in 2018.

We have shown in this Discussion Paper that contagion factors have evolved over time. Over the years, banking ties and foreign trade have given way to factors of anticipation and market sentiment. Ultimately, in the (near) future, given the growing role of emerging economies, contagion could stem mostly from economic factors. It is also clear that it is difficult to guard against this contagion, it can be sudden, and it affects all emerging markets. Indeed, even if the emerging world is not really a block, it is quite rare that an external shock does not have an overall impact. To avoid this, the shock must be purely specific, and the risk of contagion is absent. External vulnerability (and lack of vulnerability) is already an important factor for discriminating countries as regard the magnitude of contagion or even the presence of contagion.

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