Emerging Market Debt Vulnerable to Fed Moves

Policy makers in emerging markets should be hoping the Federal Reserve continues on its path of gradual interest-rate rises as some are exposed to any sharp increases in the U.S., according to Morgan Stanley.

The exposure is a result of substantial external debt linkages. Most emerging-market external debt — 20 percent of gross domestic product — is denominated in a foreign currency, with the largest component being corporate debt in U.S. dollars.

Overall foreign currency debt in the emerging markets excluding China rose from 22 percent of GDP in 2011 to 30 percent in the first quarter of this year. Most of the increase comprises longer-term obligations, with the level of short-term loans remaining relatively low at 8 percent of GDP.

Bloomberg

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.