In recent weeks and months, governments around the world were openly experimenting with capital controls to stem tides of speculative money. Where Brazil led, taxing foreign purchases of debt and equity, Taiwan and China followed, excluding foreigners from some local-currency deposits. India, Indonesia, South Korea and Thailand toyed with measures. Then came Dubai. Flows slammed into reverse. Every emerging market currency bar the Argentine peso weakened against the dollar.
Suddenly, the control freaks don't look so clever. There was no doubt that emerging markets had been on the boil: according to EPFR data, weekly net inflows to emerging market equity funds had been running at between 2.6 times and
4.6 times higher than flows into developed funds since the beginning of October. But the wave of risk revulsion, post-Dubai, should have been a reminder that today's inflows can become tomorrow's outflows.