Home ›› 06 Feb 2022 ›› Stock
Developing world investors, buffeted by various "taper tantrums" over the last decade, are now nervously watching as the rainmaker of global markets - the US Federal Reserve - readies its most aggressive rate hike cycle in 17 years.
More hot jobs data on Friday drove the benchmark for world borrowing costs, the 10-year US Treasury yield , to its highest level in two years, prompting yet more gnashing of teeth among emerging market money managers already having a tough year.
Deutsche Bank's analysts point out that while some currencies managed to save face here and there, anyone who took the approach of hedging forex risk would have seen only one year that started worse than this one since 2010.
Fed tightening has not been bad news for all EM assets though.
EM stocks measured by MSCI's 25-country MSCIEF (.MSCIEF) are flat for the year, which means they have done 5 per cent better than their developed market peers (.MIWO00000PUS), which is something of a pattern according to Morgan Stanley's analysts.
"The outperformance of EM (stocks) after the first (Fed) hike is notable," they said, noting that in Fed hike cycles since 1980, the MSCIEF has been up 17 per cent on average six months after the first rate increase is delivered.
Morgan Stanley analysts have not yet made the call to "buy EM," but they say "it suggests that the time to get more bullish on EM may be approaching."
The massive outperformance from Latin American stocks in January could be a harbinger of more EM gains.
One silver lining in last year's rout of Chinese stock markets is that many investors think they have a good chance of rebounding this year with authorities there now providing support to the economy again.
Swiss-based European fund heavyweight Pictet upgraded its view on Chinese stocks to "positive" this week on the basis of that support, and because they would probably be a good hedge in the event of a full-blown Russia-Ukraine military conflict.
