Emerging Markets will resurrect only on dollar inflows

The rupee and its rollercoaster ride dominated the business mind space this week. Across the world, emerging market currencies fell between 3 and 6 percent this week. The rupee itself was down 6 percent on Thursday when it touched 65.55. But it recovered to close the week 2.5 percent lower.

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Since May 22, when Bernanke first announced he will start to print fewer dollars, the rupee has lost 12.3 percent. Data shows rupee and other emerging market currencies suffered and a decade long economic dream has turned into a nightmare.
A tectonic shift is happening in the world economy. The weight is now shifting towards the US as dollars flow out of emerging markets. Experts say nearly a third of the money invested in bond funds of BRICS have been pulled out since May this year. In short emerging markets have ceased to be the dream investment destination. They were thought to be ten years ago.
Equity indices in emerging countries have reported double digit losses since May 22 when Ben Bernanke made a verbal departure from quantitative easing (QE).
Indonesia has been the biggest loser among emerging markets with a 20 percent fall in its index. Thailand has seen a 17 percent fall, Philippines 11 percent and India more than 10 percent.
The impact is bigger in the currency markets. Countries with the highest current account deficit have seen the sharpest fall in currencies in the last three months. Brazilian real emerged as the worst performing currency, followed by Indian rupee, Indonesian rupiah, South African rand, Turkish lira and Russian ruble.
Investors are suddenly taking note of the inherent weakness in these economies. Ballooning current account deficit and slowing growth have turned the sentiment against these emerging market economies.
Brazil, which grew at 5.7 percent in 2004 and 7.5 percent in 2010, saw gross domestic product (GDP) growth nosedive to 0.8 percent in 2012.
Turkey, the other fastest growing economy at over 9 percent in 2004 and 2010, saw a steep fall in GDP growth to 2.6 percent in 2012.
Russia's GDP dropped to 3.4 percent in 2012 from 5.2 percent in 2008.
South Africa also saw its growth take a plunge to 2.5 percent from 4.5 percent in 2004.
Indonesia is the better performing country as it continues to maintain growth over 6 percent.
India’s GDP took a quantum leap from 2004 to 2010 growing by an average of 8 percent. But the trend slipped thereafter to 6.5 percent in FY12, 5 percent in FY13 and may be lower this year.
Is this lower growth going to be a new normal for these countries or will they be able to revert to stronger growth? That will depend on their political and economic leadership. And all this will depend on whether and when global flows will revert back to emerging economies.