"Over the past six months the global credit crisis has been most intense in G7 markets centred around the shocking deterioration of the US banking system. During this time emerging market (EM) policymakers spent considerable resources doing their best to buffer their economies, banking systems and financial markets from these pressures. With financial resources for many EMs dwindling to uncomfortably low levels, ie, running out of bullets, and global pressures set to remain intense, we expect this crisis to rotate into EMs in coming weeks/months resulting in a second, more EM-centric sell-off – which may already be under way," it stated.
| There’s a vicious circle building as these countries not only border one another but they are trading partners. The fear is that a recession in one leads to a recession in another. It looks a lot like Asia in the late 1990s |
Other banks agreed that the outlook was bleak for numerous emerging markets. "Taking CDS spreads as a guide, several central and eastern European countries seem to be on the verge of collapse," wrote BNP Paribas in its FX Daily Strategist. Similarly, Commerzbank Corporates & Markets said that things were starting to look terminal for several currencies.