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.

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

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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