Economics: Are EMs safe from a hawkish Fed?

Rising US rates haven’t sparked outflows from EM assets


Widely expected portfolio outflows have yet to materialise

Tighter US monetary conditions were widely expected to spark negative spillovers for emerging markets along the lines of the 2013 taper tantrum episode. But, so far, portfolio flows have held up, and so have EM risk assets. 


Four factors seem to be behind the relative stability 

Foreigners had little invested in EMs to withdraw. Growth has held up better than expected, at least in the major EMs ex-China. The EM rate cycle is well ahead of the Fed’s. The renminbi provided a stable anchor for other EM currencies.


EM assets are not yet in the clear, but selectivity may pay off

These factors may continue to limit the downside risks for EM assets, but still-weak trend growth rates and an appreciating dollar mean there’s not a compelling upside case either. Country selection can still turn up good investment opportunities though.  



Economics: Are EMs safe from a hawkish Fed?