The Plight of the Future Hubs of International Finance

By Adam Hurwitz

As the world becomes smaller, certain emerging markets are poised to become the new hubs of international finance. The Economist, however, seems to think this shift may be delayed due to volatility and uncertainty in these burgeoning economies. The MSCI EM stock index, which includes stocks from across the developing world, dropped 3.2% this week and losses in equities and currencies in these markets have reached what some have deemed, “crisis proportions.” Two main explanations are given for this collapse. First, financial issues in China have caused a decreased demand for raw materials causing a drop-off in international trade. Additionally, anticipated interest rate hikes in the U.S. and Britain has investors scared pulling around $44 billion out of emergent-market equities and bonds. Whether or not this will put these markets into financial crises, however, remains to be seen.