The US Federal Reserve brought emerging markets back to reality last month:investors could no longer ignore Chinas lower growth rate, or the simmering political confrontations in Turkey and some other emerging markets.
Growth prospects in the US and Japan are improving, just as those in the emerging markets are worsening. That is a fundamental switch to what markets have been used to.
Although the current account and capital account balances for emerging markets were in moderate deficit until the early 2000s, they have run a surplus for the past 10 years, according to Goldman Sachs.
But with lower demand in developed markets, the emerging markets are again running capital account and current account deficits. And since 2008, less foreign direct investment, and more debt, has financed these deficits.
Over the past eight years, in emerging markets, cheap money has meant lower interest rates, causing higher credit growth, more domestic consumption, widening current account deficits and higher inflation, as Barclays notes.
This is all particularly the case in emerging markets in the middle time zone, outside Latin America and Asia. Once the markets have finished waking up to these realities, where will these countries stand?
Clearly there is some overreaction in the short term. In June, it sometimes seemed as if the past 10 years in emerging markets had never happened. But there is no going back to the 1990s.
The infrastructural effects of the boom years will persist, and as emerging market debt bankers love to say, this is no longer the quirky asset class it was 10 or even five years ago.
As Barclays notes, investors in emerging markets are now less leveraged, and more diversified across retail, pension funds, insurance firms and state institutions such as sovereign wealth funds.
Debt maturities are longer. More external debt is denominated in local currencies. Also, public-sector and private-sector debt dynamics remain relatively low in emerging markets and yields will remain more attractive than in developed markets.
As a percentage of GDP, the volume of financial flows to emerging markets since 2008 has been much smaller than before the Asian financial crisis 15 years ago, according to Goldman Sachs.
So it is not all over for emerging markets or at least not all of them. Certainly, the more risky markets will not be able to ride the liquidity wave in the way they did over the past year or two.
Countries with less-healthy public-sector debt dynamics, for example, Serbia and Ukraine, will be hard pressed to return to the sovereign debt markets any time soon.
Turkey and South Africa are more reliant on portfolio inflows to finance larger current account deficits than, for example, Brazil or Russia factors reflected in markets last month. But commodity exporters might be worse off, in the longer term.
Indeed, if greater US energy independence and a less export-oriented China now mean lower medium-term commodity prices, commodity-importing manufacturing economies such as Turkey might stand to benefit.