The emerging markets best positioned to withstand a Fed hike
Russ Koesterich, Global CIS, explains why not all emerging markets are created equal when it comes to weathering capital outflows associated with higher U.S. interest rates. History has shown that when prices for risk-free assets (like Treasuries) fall to attractive levels, investors often sell their risky assets and purchase Treasuries. Koesterich believes emerging economies with the following characteristics will better withstand capital withdrawal from financial investments. 1. Current account surplus so they aren't so reliant on foreign capital funding. 2. Ample foreign exchange reserves, giving them a cushion to keep their currency stable. 3. Commodity importers, as further USD strength could see commodity prices fall further. These fundamentals have allowed Malaysia to enjoy relative stability in the emerging market asset class. Korea and Taiwan are also better positioned than others to withstand capital outflows. Korea and Taiwan are also levered to U.S. growth and are likely to enjoy a bounce if the U.S. economy accelerates in the back half of the year. These are a few of the reasons Koesterrich likes emerging Asia more than other emerging markets. (VIEW LINK)
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