Emerging Markets not Immune to Financial Turmoil in Industrial Countries

In some of the past financial crises, one could limit risks by diversifying into emerging markets. Over the past several weeks, however, the stock markets in many of the emerging countries have suffered the same fate as that of the developed countries. The first chart shows the year-to-year changes in the daily stock prices of four emerging markets--Argentina, the Czech Republic, Turkey and Hong Kong. These data are taken from Haver Analytics' INTDAILY database.

Not only have the stock price changes in the emerging markets shown a higher correlation with those of the developed countries, growth in many emerging market countries has also begun to show a higher correlation with that of the developed countries. The second chart shows the year-to-year percent changes in real GDP in the same four countries. Each country is from one of the different geographic areas represented in the Haver Analytics' Emerging Markets databases. Data for Argentina are from the database EMERGELA covering Latin America, the Czech Republic from the EMERGECW database covering Central and Eastern Europe and Western Asia, Turkey from the EMERGEMA database covering the Middle East and Africa and Hong Kong from the EMERGEPR database covering Asia Pacific.(Data for Argentina, Turkey, and the Czech Republic were released earlier this month; that for Hong Kong was released today.)