Emerging economies and exchange traded funds (ETFs) were among those the hardest hit on Friday as the financial turmoil seemed to touch down on every corner of the globe.

Eastern Europe is considered one of the more vulnerable regions right night. For countries that have benefited from big flows of outside money, undermined by a highly leveraged global financial system, the mix of problems looks doubtful, and many are living beyond their means as current account deficits look large, reports The Economist.

The three major points that are worrisome for Eastern Europe are:

  • The counterpart of soaring foreign investment has been gaping current account deficits.
  • Their central banks and governments are lacking the financial power to such as those in the West.
  • Stock markets have already plunged, credit-default swaps isn’t solid, and savings and balance sheets are wiped out.

So far, the drop has been long and hard but orderly. Whether or not a catastrophe is looming is not known but theoretically, the the external imbalances should unwind  on their own accord. Most Baltic states do not have public debt to pay off, which should help, and their governments are bragging investment-grade credit ratings.

Turmoil in the region has been most evident in Russia, where the stock market has plunged more than two-thirds since its May high. But other areas are feeling pain, as well: Ukraine’s market has fallen nearly 80% this year and inflation is at 25%; in Hungary, public debt is 60% of the GDP.

The SPDR S&P Emerging Europe (GUR) is down 71.1% year-to-date.

Emerging Europe Exchange Traded Fund (ETF)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.