KF - How To Get EM Right: Asia Not BRATS
Introduction
Let's begin by looking at what has happened in EM currency recently via a set of charts. Everything began with the Turkish Lira in early August.
Turkish Lira
Argentine Peso
Source: Bloomberg
Both countries have experienced nearly 50% currency devaluations this year. This means that all import prices have essentially doubled - whether oil, metals, other commodities or finished goods.
What these two countries have in common are large current account deficits: a large amount of borrowing financed by dollar (or Euro) denominated loans, as well as lesser in-flows of FDI (foreign direct investment)