In 2008 investors learnt about financial chain reactions. This was not simply because the demise of Lehman Brothers hit other western groups; there was also fallout for emerging market companies.
Take a look, for example, at a fascinating report issued by the Bank for International Settlements this week. It estimates that after the Lehman shock in 2008, about 50,000 companies in emerging countries such as Brazil, China and Russia suffered $30bn in losses when the dollar suddenly surged in value as a safe haven currency. This was because the companies held derivatives contracts – and while these had seemed safe when the dollar was weak, they unexpectedly produced losses after the Lehman shock because nobody had expected currencies to swing so wildly.
It is a lesson in unexpected market consequences in a tightly interconnected world. It is particularly timely given that US Federal Reserve officials have this week signalled plans to tighten monetary policy next year – which has, in turn, pushed the dollar to a 17-month high, since higher rates will make US assets more attractive.