For almost a decade, emerging markets have been in a bull market with high growth rates, declining interest rates, and capital inflows. During the financial crisis, emerging markets were hit like financial assets around the world, and capital flowed out of the asset class. Over the course of 2010, and most of 2011, emerging market currencies have been strengthening once again. Recently, the European financial crisis has cast doubts on the risk appetite for emerging market investment. EM currencies experienced a sharp, across the board, selloff in September 2011. Currencies such as; the Brazilian Real, Mexican Peso, and Indonesian Rupiah quickly declined by 20%. Part of the decline was based on the start of EM central bank rate cuts but the majority of the move was simply risk aversion....
