How Sensitive in Growth in Emerging Markets to a US Slowdown

First seen on 'The Big Picture'

How Sensitive is Growth in Emerging Markets to a US Slowdown? - .PDF file (Deutsche Bank Global Economic Perspectives)

"...increasing exchange rate flexibility will tend to increase the sensitivity of EM economies to foreign developments. And financial market linkages, particularly co-movements across equity markets are becoming increasingly important.

Equity market capitalization relative to GDP in many EMs now rivals and in several cases exceeds that in industrial countries. Hence, the vulnerability of EMs to a US slowdown may be intensified via financial linkages, including both increasing flexibility of exchange rates (a possible appreciation of EM currencies against the dollar) and perhaps even more so via stock market linkages should the US market turn down significantly."

In other words if the US goes down, EM markets go down because of the transmission of shock through the stock exchange markets and forex markets.