Increased risk aversion

The tumbling value of the ruble has captured global attention in recent days. The Russian currency has lost more than 50 percent of its value against the dollar since the start of the year. The stark depreciation has led to comparisons with the crisis in 1998, when the Russian government devalued the currency and defaulted on its domestic debt.

The sharp fall has been linked to a collapse in oil prices, as well as the sanctions imposed by the West against Russia for its perceived role in the Ukraine conflict.

Crude prices have declined nearly 50 percent since June this year to around $55 a barrel, creating a problem for Moscow. Energy accounts for about two thirds of Russian exports, amounting to some $530 billion. Revenues generated by selling oil and gas support most of the government's spending.

Russia therefore is highly vulnerable to oil price fluctuations, and the country's central bank estimates the economy could contract by as much as 4.7 percent next year if the price of oil stays around $60.

It is, however, not just the ruble which has seen huge losses, but rather a host of emerging market currencies - ranging from the Indonesian Rupiah to Turkish Lira. For instance, the Rupiah touched 12,698 per dollar on December 15, its lowest level since 1998, before erasing some of its decline. Turkey's Lira dropped to a record low of 2.41 per dollar.

Risk aversion

Although the troubles in Russia might have triggered concerns about other emerging markets, many economists believe concerns over global growth to be behind the sell-off in emerging-market currencies.

"The Russian crisis has increased risk aversion among investors," said Jan Randolph, director of sovereign risk at IHS, an analytics firm.

When emerging market risk is perceived to increase, global portfolio capital "shifts back to advanced economies such as the US, EU and Japan, and into 'safe haven' asset markets like German, US and Japanese government debt," Randolph told DW.

Investors' expectations that the US Federal Reserve will soon announce a rise in interest rates have also contributed to this capital flight. Top officials from the central bank's rate setting committee are expected to release their interest rate outlook for 2015 on December 17, after they conclude their last meeting for the year.

If and when the Fed raises interest rates, then money could flow back to the US in search of higher yields, to the detriment of most emerging market currencies.

However, emerging markets are not all alike. Some of the biggest, including China, India, Philippines, South Africa and Turkey, are big importers of crude oil, and the current slump in oil price should benefit their economies.

Impact of low oil prices

For instance, China - which consumes about 10 million barrels of oil per day - imports roughly 60 percent of its oil. A lower oil price leaves more money to spend in the hands of Chinese consumers, which could stimulate domestic demand and boost slowing growth.

Another big beneficiary of low crude prices is India, which imports almost 70 percent of its oil. These imports account for a major portion of the nation's current account deficit.

The country's currency, the rupee, has not been immune to the turmoil that has hit emerging markets over the past few days in view of the crisis in Russia. However, India "stands a good chance of riding it out, given the reduction in the current account deficit since a year ago," said Shilan Shah, India Economist at the UK-based consultancy Capital Economics, in a research note.

Even accounting for the latest sell-off, the rupee has actually fared well in 2014 - falling just 2.5 percent - compared to falls of between 5-15 percent in most other major emerging currencies, Shah pointed out.

The prevailing political situation in a country also can influence currency movements, as in Turkey. Despite benefiting from low oil prices, the country has seen the value of its currency plummet.

Christoph Zwermann, head of Zwermann Financial, told DW that political crises in next-door Syria and Iraq have had an impact on Turkey's economic prospects.

Economist Randolph believes sentiment will have to improve if global portfolio money is to flow back into emerging economies - and the perception of "country risk" is important. Turkey's country risk has risen in part because of its proximity to the chaos in its neighborhood, and partly because of internal political uncertainty.

Ex-Soviet republics highly vulnerable

The selloff of emerging market currencies, however, will not cause a global financial crisis, nor a regional one like the Asian crisis in 1997, because many of these countries possess vast amounts of foreign exchange reserves, said Zwermann.

According to the International Monetary Fund, they hold over $8 trillion in reserves, compared to some $659 billion in 1999. They learned the lesson of 1999: governments accumulated big US dollar reserves to make themselves less vulnerable to future currency swings.

Most of the countries are also economically in a much better shape than they were during the past crises, and therefore will not be affected much in the short- to medium term, Zwermann stressed.

Furthermore, despite being an important emerging market country, Russia and its asset markets are far less influential in the global economy than is China, underlined Randolph.

However, he said that former Soviet republics in Central Asia and Eastern Europe such as Kazakhstan and Georgia are immensely vulnerable to the crisis in Russia due to financial and economic links with the country.

"This should not be surprising, because Russia was the largest rump economy for the rest of the USSR, with many industry supply chains spreading out to the other former USSR republics, and many of these ex-USSR supply chains were revitalised after they all became independent," Randolph said.

And even though many other Eastern European EU nations have largely swung their trade and investment flows from East (ex-USSR) to West (EU), they haven't managed to do it completely, and are therefore affected to a degree by the Russian crisis, Randolph added.