Capital flows & sudden stops

Foreign money rushes in for years, then flips. The reversal — the "sudden stop" — is the canonical script of emerging-market crises since 1994. Recognising the diagnostics (CA deficit, short-term FX debt, reserve cover) is the entire alarm system.

If you live in an emerging market, your local currency mortgage is denominated in something that can lose 30% in a quarter. Hard-currency debt looks cheaper until the swing — and then it doesn't. If you're investing in EM assets, the smile of the dollar tells you which way the wind is about to blow.

Pre-crisis: net inflows

+5% of GDP

Crisis: net outflows

−5%

Swing in months

10% of GDP

Currency depreciation

30–60%