http://www.economist.com/news/finance-and-economics/21595485-developing-economies-struggle-cope-new-world-locus-extremity
With low interest rates in America, many investors turned to developing nations and the BRICS to invest their money. However, with the Fed talking about tapering its bond purchases and the American economy strengthening, investors will slowly begin turning back to American financial markets. This is bad news for the developing economies, who have been gaining from the low interest rates in America. Countries such as Turkey and India have been trying to hold off raising their interest rates but can no longer afford to do so. In addition, their currencies are falling rapidly against the dollar. Economists have coined the term the "fragile five" for Turkey, India, Brazil, Indonesia, and South Africa. The countries that were once investing hot-spots are now facing difficulties as their central banks struggle to stabilize their currencies and interest rates as America recovers from the financial crisis.
With low interest rates in America, many investors turned to developing nations and the BRICS to invest their money. However, with the Fed talking about tapering its bond purchases and the American economy strengthening, investors will slowly begin turning back to American financial markets. This is bad news for the developing economies, who have been gaining from the low interest rates in America. Countries such as Turkey and India have been trying to hold off raising their interest rates but can no longer afford to do so. In addition, their currencies are falling rapidly against the dollar. Economists have coined the term the "fragile five" for Turkey, India, Brazil, Indonesia, and South Africa. The countries that were once investing hot-spots are now facing difficulties as their central banks struggle to stabilize their currencies and interest rates as America recovers from the financial crisis.
1 comment:
Multinational firms with obvious expose to emerging markets must pray for a reversal of this current trend. Exchange rate costs can significantly hurt profits for these firms, and also further hurt investor support as share prices adjust downwards to negative macroeconomic news.
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