Overview of Debt Crises From 2008 to Emerging Markets
Although the collapse of the Lehman Brothers in 2008 marked the onset of the largest global financial landslide since the Great Depression, the warning bells of such could be heard years before. Thanks to exactly a year of hindsight, it is clear that the onset of this economic downturn was caused by the corruption of the subprime mortgage market. The story starts in the early 2000s in a world of overly altruistic lenders. Even those with poor credit histories could borrow at unprecedented rates that they put into houses and real estate. This was made possible through skyrocketing liquidity brought about by the low interest rates set by the Fed to pacify public fear of recession. An attempt to hedge the risk of loan defaults took the form of collateralized debt obligations, where previous loans were grouped together and sold to investors, opening up a secondary market that generated unwanted speculation. Signs of distress began to follow quickly, with more and more borrowers defaulting on their loans, eventually leading to at least one subprime lender a month filing for bankruptcy. This
…show more content…
Despite emerging market indexed ETFs hitting all-time highs in January 2018, the narrative has changed dramatically, with investors turning their attention to U.S markets that are now characterized by faster growth, rising interest rates and a stronger dollar. With emerging markets largely reliant on such foreign inflows to finance current account deficits, such U.S. interest rates hikes makes it difficult for emerging markets to fund such deficits, with capital now being forced away from these comparatively unattractive markets. The MSCI Emerging Markets Index ETF has lost more than 12 percent of its peak value as a result of these events, and analysts expecting even rougher roads