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Tuesday, 12 December 2017

Are emerging markets becoming Fed-proof?

Are emerging markets becoming Fed-proof? That’s the argument explored in a piece this morning for the Wall Street Journal — a rare piece in a newspaper not known for its deep thinking on EM.

The team-written story argues that “strong global growth, stabilizing commodity prices and improving domestic fundamentals” are behind the ongoing emerging markets rally. That rally has so far seen key markets immune to the Fed flu: The propensity of capital to flee EM in search of lower-risk (and just plain lower) returns anytime the Fed raises interest rates.

“The MSCI Emerging Markets Index of stocks has risen around 28% this year, more than the 18% gained by the S&P 500, and is on pace for its best year since 2009,” they note, pointing out that investors will “pour USD 1.1 tn into emerging-market assets this year, the biggest flow of funds in three years.”

And there’s more to come, they argue: “Flows are expected to increase further next year, to USD 1.2 tn,” citing data from the Institute of International Finance.

Read: Emerging markets barrel ahead despite tightening fed

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