Emerging market companies with debt in dollars and revenue in sinking local currencies could struggle as the U.S. Federal Reserve begins what is expected to be a series of interest rate increases after years of easy money policies.
Money is fleeing emerging markets en masse in 2015 for the first time in 27 years and few global investors are tempted to return to equities, currencies or bonds there as many of the populous economies defining the asset class slow inexorably.
With a plethora of major central bank announcements out of the G10 this week, traders will be more focused on developed markets than their emerging market rivals, so we wanted to take a moment to reset the technical outlooks for the major EM pairs we follow.
A rise in market expectations for U.S. interest rates as the Federal Reserve starts to normalize policy could cut capital inflows to emerging markets by as much as 45%, World Bank economists said in a paper published on Tuesday.
Thousands of gallons of virtual ink has been spilled on the market implications of the Federal Reserve’s monetary policy meeting decision on Thursday, and we’ll undoubtedly see plenty more analysis over the next few days.
In last week’s EM Rundown we explored which EM currencies were most vulnerable to a potential Grexit, and while a Greek exit from the Eurozone looks more likely than ever, there is a much bigger risk for EM FX emanating from China, whose economy is roughly 40 times larger than that of Greece.