Emerging markets are in free fall. Currencies are reeling, stocks are tanking and commodities are sinking, evoking memories for many investors of the financial crisis that hit Asia hard in 1997 and 1998.
Concerns over a slowdown in China have dented confidence, while investors have also fretted over the impact on emerging markets of an imminent increase in interest rates by the U.S. Fed.
But Morgan Stanley has identified eight reasons why it believes this latest turmoil is not as grave as the crisis in the late 90's. Here they are, in the bank's words:
Debt profile: A large part of the debt buildup in this cycle has been in domestic rather than external debt. Moreover, the limited buildup of external debt has been denominated in local currency and has been raised by the public sector. In contrast, the external debt buildup during the 1990s cycle was denominated largely in U.S. dollars and was debt raised by the corporate sector.
Inflation: A large part of the region today is suffering from low-flation in CPI (consumer price inflation) and persistent deflation in PPI (producer price inflation). In typical cycles, inflationary pressures act as a constraint to central banks' response but this constraint is largely absent in this cycle.