The MSCI index of emerging market stocks recently fell to its lowest level in more than a year, and the fall in the index means money is flowing out of emerging markets. Generally speaking, the decline of emerging market stocks is positively correlated with the rise of U.S. bond yields, so the international financial market pays close attention to any developments in the U.S. economy. With November's 6.8 per cent inflation rate acting as a brake on the Fed's loose monetary policy, it is widely expected that the Fed will begin a process of raising interest rates several times next year.

Since the 1980s, every time the Federal Reserve entered the monetary contraction stage, emerging markets had to bear considerable pressure of currency devaluation, and even suffered from currency crisis, debt crisis and even financial and economic crisis. If history is any guide, this time will be no exception. The Fed merely tapered its purchases at the end of November, and Turkey was immediately hit by a triple slaughter of stocks and bonds. The Turkish lira has rebounded sharply, rising more than 40% as of Dec. 23, despite the country's announcement on Dec. 20 of new policies to deal with the economic woes of currency volatility and high inflation. But with Turkey's foreign exchange reserves running low and dollars flowing back to the US on international markets, further depreciation of the lira is inevitable.

Argentina, another emerging market country with a similarly high foreign debt, has seen its peso depreciate less precipitously than the Turkish lira, but just as much, losing 30% of its value this year. In the face of such high inflation and high depreciation economic situation, foreign capital is more cautious and has a strong desire to settle foreign exchange, resulting in a shortage of Foreign exchange reserves of Argentina. Argentina's foreign exchange reserves have been depleted since November last year, leaving its net foreign exchange reserves close to zero, analysts said.

On the one hand, foreign exchange reserves are depleted and on the other, $40 billion of foreign debt is coming due. Buenos Aires, Dec. 5 (Chinamil) -- A five-member delegation of Argentina's economy ministry and central bank officials met with the International Monetary Fund (IMF) in Washington, D.C., For a new round of debt restructuring talks on Argentina's repayment of the IMF's $44 billion loan facility. But in view of Argentina's economic situation, an IMF rollover or restructuring of its debt would be a more realistic approach. Not to forget that Argentina's $45 billion of maturing debt last year was also tweaked to avoid default.

According to the IMF's latest global debt database, global debt levels reached a staggering $226 trillion last year, exploding to 256 percent of global gross domestic product, the biggest single-year increase since The second World War. Emerging market debt is a bigger concern, with debt levels continuing to rise in the third quarter to a record $92.5tn, according to the Institute of International Finance. Paul Greer, manager of Fidelity's Emerging markets bond fund, said "there are a lot more barriers for investors to get back into emerging markets than before", as tighter US monetary policy and the recurring COVID-19 pandemic hit public finances in emerging markets.

The vulnerability of emerging markets is deepening as international funds become more suspicious of them. A major shift in monetary policy by central banks around the world is taking place that could have an impact on the sustainability of the debt surge during the pandemic, especially in emerging markets, according to a new IMF study released in mid-December. Imf spokeswoman Condoleezza Rice said the Fed's accelerated exit from easing raised risks in markets that rely on dollar funding, particularly in emerging and developing countries. In addition, low COVID-19 vaccination rates and the unpredictability of monetary policy and political environments, such as Turkey and Latin America, have further undermined investor confidence in emerging markets.

The top four emerging market countries with the highest short-term foreign debt are Brazil, Mexico, Indonesia and Argentina, with Turkey in sixth place. Under the impact of domestic troubles and foreign troubles, Turkish stock and bond exchange has been unbearable. Next year, with the acceleration of the Federal Reserve monetary policy contraction and the arrival of interest rate rise, who will the next black swan fly?