July 31 (Reuters) – The taper tantrum was brutal, but rising
rates do not have to mean lousy performance for emerging
As investors look to the possibility of rising official
interest rates in the U.S. and Britain in the coming year their
expectations are colored by nasty memories of 2013′s taper
tantrum, when bumbled communications by the Federal Reserve
caused Treasury yields to spike and emerging markets to suffer.
Asset performance was both volatile and very poor,
particularly among emerging market countries like India and
South Africa which need to attract capital flows from abroad.
But much depends on why rates are rising, rather than just
“Higher interest rates and exit from monetary stimulus in
major advanced economies when led by stronger growth prospects
produce good spillovers,” according to International Monetary
Fund economist Hamid Faruqee, one of the authors of a report
this week on the potential impact of interest rate
“Interest rates tend to rise elsewhere. But they are lifted
by a rising tide of economic activity at home and abroad.
Another positive development is that trade and capital flows
tend to strengthen.”