Volatility has returned with vigour. After several days of turmoil triggered by a plunge in Argentina’s peso, investors are wondering how bad it will get.
Unease over the pace of Chinese growth and reduced Federal Reserve bond-buying has spread, from the thinly traded peso to South Africa’s rand, the Turkish lira, other emerging markets and even the world’s big stock indices.
The big challenge facing emerging markets is what Alexandre Tombini, Brazil’s central bank governor, calls the “vacuum cleaner” of rising interest rates in the developed world. This could suck more money out of emerging markets, forcing authorities to tighten policy to beat inflation.
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