Asia’s Emerging Markets Get Ready for Fed’s Rate Hike

Faced once again with the prospect of rate rises in the United States, investors in Asia are no longer selling and running as in the past, choosing instead to stay in markets like India and South Korea, that are relatively sheltered from global forces.

The two bouts of market turmoil in May 2013 and January this year demonstrated the perils of selling out of markets prematurely and indiscriminately.

This time, investors have already begun preparations for a rise in U.S. rates by mid-2015 at the earliest, albeit with a degree of caution about the different moving parts to the policy story.

For one, central banks in Europe and Japan could soon be injecting stimulus, which would compensate the world for the cash the Federal Reserve is withdrawing.

And secondly, it is entirely plausible that U.S. growth disappoints, thereby keeping yields down but pushing stock markets sharply lower.

Standard responses to a spike in U.S. rates, such as avoiding Indonesia, India and other countries which rely on external funding, may no longer be appropriate, given how rapidly Asia has changed in the past year.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza