Is there another emerging market (EM) crisis within a short horizon? Apparently, there are some clear indications pointing so.

Argentina has raised its interest rates 3 times within a week with its current interest rates being around unprecedented 40%. Turkish Lira is also in dire straight being at close to record lows against US dollar.

The trigger for such a situation usually comes from developed world as seen in the past as well. E.g. in 1994 when tighter monetary policy from Mr. Alan Greenspan pushed the interest rates and dollar higher leading to a chain of events in emerging markets to trigger a financial crisis there. Higher interest rate in US created strong US dollar and weakened the emerging market currencies. This put unbearable pressure to service (repay) USD dollar denominated debt.

As an old saying, history doesn’t rhyme but chime. We have currently kind of similar global economics conditions brewing where Fed has already embarked on slowly raising interest rates although inflation is still subdued and the Geo political risk is on the rise, US-China trade conflict, Iran conflict, presidential elections in Brazil and Mexico to name a few.

For the last several weeks, US dollar has been strengthening against EM currencies making it difficult for EMs to repay, at record level US Dollar denominated debt. This risk consideration is being further supported by the JPMorgan’s EMBI index of government bonds which has fallen sharply.