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.