“The perceived resilience of emerging markets [will be] truly tested” in 2008, said Deutsche Bank back in January. That proved prescient. The MSCI Emerging Markets index fell 53% up to mid-December. The 61% plunge in China’s CSI index wasn’t a surprise; as the FT’s Lex also noted in January, the air was already hissing out of that bubble. But the 71% slump in Russian RTS was less expected. The economy is “well insulated from outside domestic shocks and its financial institutions have no exposure to subprime problems”, said Financialsense.com. But collapsing commodity prices, a weakening rouble and credit-market woes contributed to utter panic in the second half. “Investors, foreign or Russian, simply don’t believe the government is able to steer the economy through the crisis,” said Pierre Briançon on Breakingviews. The invasion of Georgia didn’t improve sentiment either. Russia shuttered its markets more than any other country in September and October, while oligarchs and banks had to be bailed out by the Kremlin.
As for Brazil and India, the rest of the ‘Bric’ economies, Geoffrey Dennis of Citigroup was right on Brazil, noting it was “inconceivable” that it could shrug off a global slowdown and the damage that would cause to commodity prices. As oil cracked, so did the Bovespa (down 37%).
India, widely tipped to be resilient, slumped 50%. Other notable performances included Saudi Arabia’s Tadawul (down 55%) and Iceland (down 95% as its banks imploded). But on a regional basis, the hardest-hit was Emerging Europe. In February, Vanessa Gera noted in the International Herald Tribune that retail investors were experiencing “their first real battering” since the end of communism. A few months later, they had a severe case of whiplash as the credit-fuelled boom came to an abrupt end. The best performers were Slovakia (down 21%) and Poland (down 48%); everywhere else more than halved.