Rethinking Emerging Markets

Abstract

The Mexican financial crisis of late 1994 and early 1995 resulted in a linked collapse of stock market values in almost all developing countries, regardless of economic policies or performance. The contagion effect was clear, and much commented on, if not fully explainable by either theory or past experience. Other Latin American equity markets, being close to ground zero, universally declined by 15% to 30% in less than a month. So did markets in Asia, where price indexes in Hong Kong, Singapore, Taipei, Seoul and Bangkok dropped 10% to 15% in a matter of days. Markets in Poland, Hungary and the Czech Republic were off by similar amounts.