Ask Matt: Emerging markets sink global economy?

Matt Krantz | USA TODAY

Q: Will emerging markets bring down the world economy?

A: Less-developed nations were once the wind behind the global economy's sails. Now they're the anchor.

Stock markets in large emerging nations, including Brazil and Turkey, are down more than 10% this year, a startling development as U.S. markets rise more than 20%. The SPDR S&P Emerging Latin America index is also a laggard this year, falling more than 10%.

It's tempting to worry that problems in emerging nations might spiral and cause bigger issues. That would be completely overstating the situation, says Scott Anderson, economist at Bank of the West. South Korea's stock market fell 65% during the 1997 and 1998 Asian financial crisis, well beyond any of the damage in emerging nations this go-round.

Furthermore, emerging nations have much deeper financial resources to prevent any sort of major currency crash in Asia. Emerging markets are sitting on foreign exchange reserves equal to 25% of their economies' GDP, giving them the financial power to hold off the potential damning handiwork of speculators, Anderson says.

Russia, China and South Korea are in the best shape in this regard among emerging nations. If there's a country that should be watched, though, it's India. India's foreign exchange reserves have fallen and that country might be one of the hardest hit if its economy doesn't turn around.