Hot Money Markets

 Hot money destabilizes financial markets. With fed tapering, money is flowing out of merging market exchanges. Indian rupee has so far taken the brunt of devaluations.

Emerging Asian economies had a similar event 1997-1998. Unlike Asia 1997/98, BRICS have responded pretty quickly to unfolding events. However, Central Bank response has factored more volatility into currency markets. This modifies lag currency volatility that will result from more Fed tapering.

South African Rand, Indian rupee, Turkish lira and Brazilian real all remain exposed to further volatility. The medium term picture is worsened by the possibility of a dollar climb-down as, markets start responding to possible Fed taper slow-down. Market uncertainty is not helping emerging economies already dealing with economic slowdown. Growth in emerging markets will stay watered down and currency volatility will haunt the third and fourth quarters of this year.