Why US tightening is not the main threat to EMs

EMERGING MARKETS

The recent tension in Ukraine and the Middle East are likely to drive greater dispersion in emerging market debt, but carry trades are likely to face further setbacks according to Fadi Zaher, head of bonds and currencies at Kleinwort Benson.

 The tightening of monetary conditions in developed markets may not be the main threat to the market value of emerging market assets in the quarters ahead. In a muddle through scenario for emerging markets, it may be a combination of the global business cycle and investors’ risk appetite that will drive the capital flows into the sector. As Mark Twain said: “History does not repeat itself, but it rhymes.” The tightening of monetary conditions by the US Federal Reserve last year posed a major threat to EM assets, particularly for countries with current account deficits – referred to as th...