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With the US Dollar at a 12-year high, overleveraged EM currencies look extremely vulnerable. Since 2008, EM financial assets have nearly doubled to $47 trillion, mostly in the form of debt. All kinds of debt. Outstanding loans, corporate bonds, government bonds, you name it.

This shouldn’t be a surprise. Raghuram Rajan, head of India’s central bank, believes the growth of EM debt is a direct result of QE in the developed world, saying “When monetary policy in large countries is extremely and unconventionally accommodative, capital flows into recipient countries tend to increase local leverage; this is not just due to the direct effect of cross-border banking flows but also the indirect effect, as the appreciating exchange rate and rising asset prices, make it seem that borrowers have more equity than they really have.”

As USD continues to appreciate, it will become increasingly difficult for borrowers to make good on their debt obligations; especially in Asia. where the issuance of bonds exploded in 2014. EM governments and companies raised $942 billion through the first three quarters of 2014. 84% of that, or $795 billion. came from Asian-Pacific countries. Ostensibly, borrowing surged in order to lock in low rates before the Fed hikes in 2015, but that doesn’t mean they’ll be able to pay it back.

Not only is Asia the region with the most debt, it might also have the most currency risk. Take a look at the ADXY Asian Currency Index:

Importantly, ADXY is made up of currencies from every major Asian country except Japan, which, as we all know, has essentially devalued the Yen. The Chinese Yuan (CNY) and Hong Kong Dollar (HKD), which remain pegged to USD, make up 49% of ADXY; meaning that if the index is down -3.2% since September, the other components are falling rapidly. Taiwan’s currency is down -5% against USD. The Korean Won has dropped -6.7%. The Malaysian Ringgit is spiraling, down -12%. These Asian currencies are getting slammed across the board, but one country stands out as the most vulnerable: Indonesia.

Indonesia is the fourth largest country in the world based on population, and the largest economy in Southeast Asia. Sixteen years ago, during the Asian Currency Crisis, Indonesia was very close to becoming a failed-state. Today, GDP growth of 5% Y/Y hides the country’s economic struggles. More than 40% of the nation’s 250 million people live on less than $2/day. The archipelago currently ranks 114th out of 189 countries in the World Bank’s ease-of-doing-business survey, trailing Egypt in terms of corruption.