Fed tightening not a threat to Emerging Markets

Many market commentators say that Emerging Markets (EM) will be vulnerable as the Fed begins to hike rates. However, BCA throws cold water on these claims, saying “In the past, EM vulnerability has not stemmed from Fed tightening.” BCA says “Over the past 20 years, EM risk assets – stocks, currencies and credit markets – typically performed well during periods of Fed tightening and sold off during episodes of easing. Generally, we believe Fed policy could alter investor sentiment and capital flows to developing countries, and hence influence EM financial markets in the short run. However, in the medium and long term, fluctuations in EM interest rates, equities, credit markets and currencies are largely explained by EM domestic fundamentals rather than Fed policy.” (VIEW LINK)