The recovery in emerging markets looks fragile for all but a handful of countries

IT IS not easy to have faith in the rally in emerging-market currencies that has taken place since February. The ones that have risen most in recent weeks are typically those—the rouble, the real and the rand—that had lost most ground since May 2013, when the emerging-market sell-off began in earnest (see chart 1). What is there to like about Russia, Brazil and South Africa, with their wilting economies and dysfunctional politics?

The proximate causes of the rally are clear. One was the fading of fears for China’s economy. At the start of 2016 capital appeared to be fleeing China at a rapid rate, in a vote of no confidence. The yuan seemed in danger of losing its moorings against the dollar, raising fears of a round of competitive devaluations across Asia and beyond. Views changed around the time of the meeting of the G20, a club of big economies, in Shanghai in February. Informal pledges by the Chinese authorities not to let the economy slide were backed up by stimulus policies, including a big budget deficit and faster credit growth. Tighter capital controls stemmed the outflows from China. Prices of scorned commodities, such as iron ore, surged at the prospect of Chinese construction. Currencies of raw-material exporters rose too.

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