.....complaining rarely fixes problems, especially when perceived interests across borders are not aligned.
Take the money. Many emerging markets started issuing more debt in response to investor demand, which is politically convenient because popular domestic projects can be financed. Fostering increased liquidity in local debt markets on its own is laudable, but achieving increased liquidity merely by issuing more debt may be an ill-guided strategy making a country vulnerable when the music stops.
Absorb the money. A number of emerging market central banks absorb inflows directly by issuing their own short-term debt. The advantage is that the capital won’t be directly available to governments or industry to spend, creating an unsustainable short-term boom (bubble). Such policies are typically aimed at preventing a currency from appreciating too much. On the downside, lured by the potential for currency appreciation, money usually does find a way into the country anyway, often into real estate. As such, while active reserve management helps to mitigate some of the pressure of hot money flows into a country, it’s not a panacea.
As the tide is turning, there’s talk of currency intervention and capital controls. We wonder how many days Brazil’s $60 billion to support the markets will last. That’s because the root cause of the flight is a re-pricing of risk: emerging markets are risky – what a surprise! And when the U.S. sneezes, the rest of the world continues to be at risk of catching a cold. Well, the U.S. bond market may well enter a prolonged flu season and the rest of the world better be ready for it. In other words: we expect volatility in U.S. bond markets to persist, with particularly grave implications for emerging market local debt.......
It is no surprise to us that Asian countries with strong external balances, such as China, Taiwan and Korea, have weathered the storm so far much better than India, Indonesia, South Africa or Brazil, and investors may want to deploy their capital selectively within the emerging markets Long-term investors may find better risk-adjusted returns in those countries embracing reform rather those fighting investors.
seekingalpha.com/article/...erging-markets-stop-crying-grow-up