Expert Zone

Straight from the Specialists

Why the Fed is not worried by emerging market moves

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Several emerging market central banks have been forced to react to market events already this year. Interest rate increases in India, Turkey and South Africa followed bond or currency market volatility. Argentina has endured dramatic moves in its currency, and Brazil has been forced to tighten policy.

The moves in these markets, unlike those of 1997-1998, do not suggest a systemic threat to all emerging markets. Investors have distinguished markets where errors in fiscal policy, monetary policy or political risk created a fundamental mispricing. Such errors are generally most visible in a current account deficit or a government budget deficit, or both.

The prospect of rising global bond yields has offered investors alternative investment opportunities to these troubled countries, with fewer risks. Countries that have followed a more orthodox policy approach, and have generous foreign exchange reserves and current account surpluses or equilibrium have been less threatened.

Asian bonds: rising discrimination

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Ever since reports emerged that the United States might taper off its bond-buying program, emerging markets have whipsawed: falling currencies, rising rates and fleeing funds. India and Indonesia have been two of the most affected countries in Asia.

The Asian dollar bond markets have also been affected by the fear of tapering. On the one side, longer-term bonds have lost substantial value as U.S. interest rates have picked up. Additionally, investors have discriminated between bonds from vulnerable countries and those from stronger countries.

from Davos Notebook:

Where emerging markets are headed next

In its video presentation "Looking to 2060: A Global Vision of Long-term Growth," the Organization for Economic Cooperation and Development predicts that China will soon surpass the United States to become the world's largest economy, and will account for 28 percent of global gross domestic product by 2030. The OECD also predicts that by 2060 the combined GDP of China and India will overtake that of the OECD economies. Meanwhile, Bain estimates that by 2020 emerging economies will account for two-thirds of global economic growth.

Without doubt, emerging countries are showing more resilience and promise than established economies in the Americas and the euro zone.

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