Russia May Be Ugly, But Don't Expect an Emerging-Market Meltdown

(Bloomberg) -- It looks very ugly. The biggest decline in Russian stocks since the Crimea standoff, a slide in the ruble that has surpassed all its peers and a surge in the country’s credit risk.

Yet for all the turmoil that the latest U.S. sanctions have wrought, the wider emerging-market universe is mostly unscathed. With the selloff largely limited to Russia, the MSCI Emerging Market index has carved out a 0.3 percent gain, yield spreads on developing-nation bonds have barely budged and a gauge of emerging-market currencies is just a touch lower.

In fact, stock investors seem so indifferent to it all that, following today’s rout in Moscow, Russian equities are the least correlated with their emerging-market peers in a year.

Of course, this could all change if investors start to take the view that the fallout from the Russian standoff will widen, but for now the message is clear: Markets in developing economies are much more insulated against episodes such as this than in the past.

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