Mistrust of emerging markets has sparked an exodus from currencies and stocks, punishing economies in Latin America, Africa and Asia. In the global south, however, that flight of money is seen as rash and puzzling.
The trigger for the selloff was a de facto devaluation in Argentina that began on Jan. 22, when the country's central bank stopped defending the peso, prompting a drop in the currency of nearly 15 per cent.
That raised the level of anxiety among investors already tense about simultaneous but unrelated international events – such as street protests in Ukraine and Thailand and tighter monetary policy in the U.S., where years of abundant, cheap money had helped fuel a rise in emerging market currencies, shares and other assets.
"You can't put all the emerging countries in one basket," said Humberto Saccomandi, the international news editor at Brazil's leading financial newspaper, Valor Economico.
"Every one of the those situations is different. Non-professional investors are getting scared – but professionals know where they can make money."
His comments came Monday as some calm returned to the currency markets. Turkey's central bank announced it would hold an emergency meeting Tuesday and Argentina said it would maintain a $2,000 (U.S.) month limit on purchases of U.S. dollars.
Argentina's official exchange rate is about eight pesos per U.S. dollar; on the black market, the rate is closer to 12-to-one.
About $1-trillion (U.S.) has been lost from emerging market equities since the U.S. Federal Reserve revealed it would reduce its monthly asset-purchase program. On Wednesday, the central bank is expected to announce that the program will be trimmed again.
That is likely to send U.S. interest rates higher – making U.S. government bonds more attractive and causing some investors to remove money from places like Brazil where they had parked it in search of higher returns.
"You have countries … like Brazil, Turkey, India, where the expansion was based on the perspective that high commodity prices will prevail and now people are trying to see how those countries are going to adapt together – if you add to that the political variables, things seem more turbulent," said Carlos Mussi, director of the United Nations' Economic Commission on Latin America and the Caribbean.
"So people say, 'Turkey is a problem, let's get out, Argentina is a problem, let's get out – but where do we go? We go to Brazil because it has put up interest rates – but growth is slowing in Brazil, so let's go to Chile.' Investors are bewildered by all these situations."
But in Sao Paulo, Johannesburg and Mumbai, analyzing all these economies together as the problem of "emerging markets" is perceived as misguided.
Sebastian Bertozzi, director of sovereign ratings with Standard and Poor's in Buenos Aires, said it was a mistake for investors to extrapolate from what's going on in Argentina to the rest of the world, or even the region. "Argentina doesn't play a very strong role in anything except as a market for Brazil, and really, not even there," he said. "People get nervous – and the truth is events here are very difficult to follow and to understand – but no other markets in Latin America are showing stress levels at all."
Chile is sometimes discussed in the same breath as the other Andean nations Argentina and Venezuela – both of which have serious inflation problems. But while Chile is hugely dependent on the Chinese hunger for copper, which makes up about 60 per cent of exports, it has a balanced budget and a carefully managed monetary policy. With inflation at 3 per cent, it doesn't deserve to be lumped in with the regional crisis cases, said Diego Giacomini, chief economist with the Economia y Regiones consultancy in Buenos Aires.
And Brazil, most analysts agree, is in better shape than one might believe. The pessimism that exists internationally is not shared domestically. Remarks by President Dilma Rousseff in Davos last week are being read here as an implicit acknowledgment that she will cut spending and reduce the deficit – although she cannot say so overtly in an election year. Her government has raised interest rates steadily to keep inflation in check, and let the real decline against the dollar, helping exports. The real has declined 14.6 per cent against the greenback in the past year.
Mr. Saccomandi noted that Brazil is on its way to being an energy exporter, and is a food exporter, and while Chinese demand for metals has softened, that balance may be made up in other areas.
"Brazil has a larger economy, is more diversified, has more foreign capital – people were disappointed when it didn't meet expectations a couple of years ago, but this economy is working. We have low unemployment, wages are steady, not growing like in the past, credit is flowing, people are buying," said Mr. Mussi, who monitors the region from a base in Brasilia.
Mexico and South Korea have fared better over the past week; both are poised to benefit from the strengthening U.S. economy implied by the rising U.S. rates.
In South Africa, the picture is less clear. The rand has sunk to a five-year low, down by about 25 per cent since last May, a sign of investor discontent with continued instability, labour unrest and slow growth. Labour militancy is growing; an upstart new union is currently leading a strike that has shut down about half of the world's platinum production.
With an election expected in April or May, and with the ruling African National Congress (ANC) under pressure from an emerging left-wing party that favours nationalization of many key industries, analysts have warn that the ANC may adopt more populist measures unfavourable to foreign investors.
But that, too, is a localized problem, and should not provide an overly long shadow on emerging markets as a whole, Mr. Giacomini said.
"These days emerging countries are still a good opportunity for investment, with good returns compared to European or Japanese or American returns – there is a lot of liquidity still, so there will still be investments in emerging countries," he said.
With files from Eric Reguly in Rome and Geoffrey York in Johannesburg