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May 18, 2018 www.intellinews.com I Page 10
Emerging markets have gone off the boil since April
Ben Aris in Berlin
Emerging markets have gone off the boil since April as growth peaks, geopolitical instability wracks the globe and the US Federal Reserve bank tightening cycle gets underway.
Net inflows into emerging markets (EMs), especially Russia, have turned negative in the last month, report analysts, although the sell off has not been as severe as earlier crisis-related routs.
“EM financial markets have steadied today, but the moves over the past few weeks have been relatively large compared with the other Fed- related sell-offs over the past 18 months. That said, this sell-off has been much less severe than those driven by rising US Treasury yields that occurred between 2013 and 2015, reflecting the fact that EMs’ economic vulnerabilities have declined since then,” the Institute of Internation- al Finance (IIF) said in a note on May 14.
The think tank blames the sell off on recent
Fed rate hikes and the anticipation of more to come this year, making US securities more attractive and pulling money out of the riskier EM securities. The current sell off is the worst in one and half years, says IIF.
“Among the EMs in our sample, currencies have fallen by an average of 3.7% while bond yields have risen by 30bp since the sell-off started. These are among the largest moves since 2015. (The figures would look worse if we included Argentina. We exclude it as its exchange rate was heavily managed before 2016.),” IIF said in a note.
And the sell off is broad based with every currency in EMs having fallen against the dollar while all local bond yields have risen (except in China). The last time that happened was during the so-called Taper Tantrum in May 2013.