Last week’s economic fallout has left many people shell-shocked and asking the question “How could this happen?” Every economy in the world has been affected and I personally believe we won’t fully realize the ramifications of it for multiple months at the earliest. The worst part is that the vast majority of the people who will be the most affected are those that don’t even understand what’s been happening in the financial sector.

In an AP article released in the Seattle Times this morning entitled: “Emerging Markets Suffer as Foreigners Withdraw,” the author discusses how many of the frontier and emerging market economies will be hit the hardest as investors pull out their money. In the middle of one of the worst economic periods of stability in history, investors are running for the hills (or wherever they perceive there is sure-footing). According to the Emerginvest heat map, China’s Shanghai A Shares index is down 66.5% for the year (FXI), India is down 43.4% (INP), Russia is down 63.5%, and the iShares MSCI Emerging Markets Index is down 54.4% since its high last year (EEM) (to name a few).

Here’s the Emerginvest Outlook Graphically: (Click to Enlarge)

Investors immediately write off emerging markets as their “risky” assets, so those are typically some of the first to be sold. The Seattle Times article states that: “private sector capital flows to 30 emerging market nations across the world will fall by nearly a third from last year.”

While there are tremendous up and down swings in emerging markets, every economy in the world is being rocked by the financial waves. It’s just the environment. Yet, according to the Times article:

“The exodus has prompted a chorus of protest in the emerging world: We did not cause this global meltdown, our economies are still growing, our banks don’t have much exposure to the toxic securities at the core of this crisis.

Why must we suffer, they ask.

‘It doesn’t seem fair to me that those of us who endured so much hunger in the 20th century, who began to improve in the 21st century, should have to suffer due to the international financial system,’ Brazilian President Luiz Inacio Lula da Silva said recently.

India’s Finance Minister P. Chidambaram this week reiterated that India’s economic fundamentals are healthy.