Ghosts of '97 Continue Haunting Emerging Markets

2006 was a boom year for emerging markets: The iShares MSCI Emerging Markets Index (EEM Quote), a proxy for emerging markets worldwide, grew by 22%. Regional markets in Southeast Asia fared better still. The FTSE ASEAN Index, which tracks equities in Indonesia, Malaysia, Philippines, Singapore and Thailand, surged 31% last year, while the Shanghai stock exchange soared by over 125%.

But routine questions over whether this kind of growth is sustainable have taken on more serious tones amid a new round of political instability in Thailand specifically and weakness in emerging markets generally.

Doubts over the sustainability of last year's boom raise the question of whether 2007 is the next 1997, when Thailand's currency devaluation sparked the so-called Asian contagion: bouts of panic-selling in Asian markets that spilled over into other emerging markets and, eventually, developing ones as well. ...