Emerging market crises have become more contained
In the early days of emerging markets investing, trouble in one country could quickly spill over to another. Events such as the Tequila crisis in 1994, the Asian crisis in 1997, and Russia's default in 1998, all contributed to the
perception that emerging markets were prone to "contagion risk".
However, growing investor sophistication has led these types of events to stay more isolated. Political upheaval in the Ukraine, which started in late 2013 and led to Russia’s annexation of Crimea and the downgrade of its debt
by rating agencies, prompted many investors to pull out of Russia. However, rather than leave emerging markets entirely, fixed income investors rotated into the bonds of other commodity producers like Kazakhstan.
Of all countries, China has the potential to generate the widest reverberations. However, the impact on EM debt investors could be mitigated by two factors. First, the main emerging market debt indices do not include Yuan-denominated
Chinese bonds, and second, a slowdown in China could trigger looser monetary policy, which would be positive for fixed income investments.
"EM has evolved a lot. Country specific events are more contained and markets less susceptible to panic."