International investors are prone to herd behaviour

The big-ticket investors who drive global financial markets tend to regard emerging markets, from Albania to Zimbabwe, as an entirely homogeneous group.

When one country is afflicted, the assumption is that all are tainted; a crisis in Zambia can spark an investment exodus from Armenia, for example.

During the 1980s and early 1990s, many emerging markets became heavily dependent on inflows of such "hot money", financial market capital chasing hefty, but highly speculative, returns.

During the late 1990s, dozens of countries, particularly across Asia and Eastern Europe, learned for the first time that such money can disappear as quickly as it arrived.

Russia's collapse into financial crisis in August 1998 caused capital flows to the developing world to dry up almost completely.

Even the rich suffer

Nor is this sort of thing a problem only for those who live in Armenia, Albania, Zambia and Zimbabwe.

The rapid growth in cross-border corporate investment means that an increasing number of jobs in the rich world depend on emerging markets.

Many big firms are heavily exposed to Argentina

It is a rare multinational company that has no emerging-market investments; for some, notably in the financial sector, consumer goods and tobacco, emerging economies are pretty much the only place to unearth respectable growth.

August 1998 took its toll on the financial industry, and on a swathe of firms that had dived over-zealously into the Russian market.

Now, some fear that a Latin American slump could hit the bottom line of firms from Manhattan to Madrid.

Stronger this time

Thankfully, however, fears of 1998-style contagion seem to be overdone this time around.

There should be less chance of bad news spreading from one country to another, since many governments have modified their policy regime, precisely with the aim of avoiding contagion a second time.

Russia is looking remarkably robust this winter

Russia, in particular, emerged from the last crisis considerably stronger than it went in.

And even if investment speculators were to attack all emerging markets at the same time, it may not have such a devastating effect as in previous crises.

Most emerging economies are far less dependent on flows of short-term investment than they were in the 1990s.

This was put to the test earlier in the year, when a number of important markets - including those in Argentina, Brazil and Turkey - rattled sharply downwards.

Despite a raft of gloomy predictions, those jitters did not become crises.

Local difficulties

But the Argentine crisis may not be without its casualties.

The group closest to the firing line are Argentina's Latin American neighbours, which are threatened twice over.

First, they are subject to the same sort of investor punishment that Argentina is currently suffering.

Brazil, in particular, which has bigger and more open financial markets than Argentina, is frequently used as a near-proxy by investors.

Its stock market has lost almost 30% of its value this year; only Egypt, Turkey and Argentina itself have performed worse among emerging markets.

Second, given Argentina's pivotal importance as a trading and financing partner in Latin America, no economic disruption there can be without its consequences.

Again, Brazil has become a major centre for exporting to the Argentine market - where demand is falling fast.

Third, and possibly most damaging in the long term, Argentina's fall from grace does great harm to Latin America's economic reputation, which has in any case been decidedly fragile for the past decade.

Currency crunch

The other group in potential trouble are those emerging markets that share some key characteristics with Argentina.

The most important thing to watch here - and what has really aroused investors' ire - is the currency board, under which the Argentine peso is pegged immovably to the US dollar.

The peso peg, in place since 1991, when it was highly fashionable among economists, is now seen as the root of Argentina's troubles, restricting freedom of movement, overvaluing the peso, and substituting governmental rigour for free-market flexibility.

Now, investors are asking searching questions of other countries with currency boards, a select band that includes Hong Kong, Estonia and Bulgaria.

It might not be all-out contagion, but Argentina's current ills may still prove catching to some.