Emerging-Market Tremors Shake the World Economy

Emerging-market crises were supposed to be passé—a relic of the rocky 1990s, when investors suffered through the Tequila Crisis and the Asian Contagion in rapid succession. But history is stubbornly repeating itself. Emerging markets erupted afresh during last summer’s Taper Tantrum—who comes up with these names, anyway?—and as 2014 begins there’s turmoil from South America to Asia.

Most at risk are poorly governed countries such as Argentina and Ukraine that became addicted to hot money from foreign investors in search of high returns. Those capital flows are sloshing back to developed economies like the U.S., leaving submerging economies behind. Countries with stronger finances and a unified citizenry are in less trouble, so the likelihood of another full-blown emerging-markets crisis remains low. Yet some of them could be dragged down if investors flee in a panic. “Events can unfold very rapidly if a disorderly process takes hold,” Morgan Stanley analysts warned clients on Jan. 27.