The Pathways of the New Contagion

There was once talk of "decoupling," the idea that the growing surpluses of emerging markets made them new bastions of stability, protected from financial storms in the West. Not now. From Russia to South Korea, emerging-market stocks have plunged, often further than Wall Street, as recession fear spreads. Gauging the Damage:

VENEZUELA
Venezuela looks particularly vulnerable as the credit crunch spreads. As oil demand slackens, the price of crude is plummeting, and it closed at a one-year low last week. That has a huge impact on this oil-dependent economy. Inflation is the highest in the region (more than 20 percent), and president Hugo Chávez's popularity, already at a low ebb, could fall further.

BRAZIL
A month ago, Brazil's president predicted the crisis would produce only "a ripple" in Brazil. He was wrong. On Oct. 16, the Bovespa index lost more than 11 percent, its biggest single-day drop in a decade. The real has slid 30 percent against the dollar since Aug. 1. But the banking system is shielded by ultraconservative lending practices (credit accounts for just 34 percent of GDP), and inflation is pinned by hawkish interest rates. Brazil may still be the emerging market best positioned to weather the crisis.

RUSSIA
Russia wins the prize for the emerging market worst hit by the financial crisis. The stock market has lost two thirds its value since May. When things turned serious, the Kremlin offered $70 billion in soft loans to the banking sector and pledged government money for stock buybacks. Those attempts were sabotaged by declining oil prices, which fell below $70 a barrel last week. The impact shows just how dependent the country really is on oil.

DUBAI
Dubai was a standout among the newly disciplined emerging markets, for its lack of it. To create its high-rise follies, Dubai took on debts that now exceed GDP, and the emirate looks vulnerable to a slowdown as tourism slows. Real-estate prices are cooling, and the U.A.E. has announced plans to inject $30 billion into local banks to avert a real crisis. For now though, $25,000-a-night rooms at the new Atlantis resort are still getting customers.

SOUTH KOREA
South Koreans thought it couldn't happen again. They had worked so hard at reform after the collapse of their currency in 1998. But last month the won fell 20 percent, as Koreans began hoarding U.S. dollars in their home safes, fearful of the global market swoons. The first current account deficit in a decade now looks certain. And the ghosts of '98 are back.

INDIA
India figured it was immune, too, before the foreigners started fleeing and the layoffs began. Fired employees of Graziano Trasmissioni murdered the CEO. Jet Airways hired back 1,900 workers after stewardesses staged rallies in stiletto heels. Prime Minister Manmohan Singh urged the West to consider the developing world in its rescue plans.

JAPAN
Japan shows how America's subprime credit is taking down even markets that had little exposure to subprime. Most banks still boast solid balance sheets thanks to the discipline learned after the Asian financial crisis. Unfounded fear for the financial sector is now morphing into more realistic fear about the "real economy," which will be hurt by a global slump. On Oct. 16, the Tokyo market saw its biggest one-day drop in 20 years--11.4 percent.