The latest minutes from the U.S. Federal Reserve Open Markets Committee show clear concern about how rising rates will impact emerging markets.
Following the release of FOMC minutes, the Vanguard FTSE Emerging Market ETF (VWO) and the iShares MSCI Emerging Markets ETF (EEM) are flat in late afternoon trading as is the iShares JPMorgan USD Emerging Markets Bond ETF (EMB).
The Fed staff noted rising equity prices, especially in China, and risk from the outcome of debt negotiations between Greece — categorized as an emerging market – and its creditors.
The specific mentions of emerging markets from the April 28-29 Fed committee minutes:
“The staff discussed the risks to financial stability associated with the possibility of substantial unanticipated changes in longer-term U.S. interest rates, including the scope for a sharp increase in such rates to affect financial conditions in emerging market economies.
A number of other risks were noted, including geopolitical tensions and the potential for an increase in financial strains related to the negotiations between Greece and its official creditors … Economic growth in both advanced foreign and emerging market economies appeared to slow, on balance, in the first quarter of 2015.
Global trade and industrial production weakened. Among advanced economies, output growth declined in the United Kingdom and economic indicators for Canada and Japan also pointed to slower growth in the first quarter.
In contrast, real GDP growth seemed to have increased in the euro area. In emerging market economies, real GDP growth slowed sharply in China and indicators of activity weakened in Mexico and Brazil, but real GDP growth picked up in some emerging Asian economies. Inflation remained low in most economies, partly as a result of earlier declines in oil prices ...”
Of note for bond investors: “In their discussion of financial market developments and financial stability issues, policymakers highlighted possible risks … it was suggested that the tendency for bond prices to exhibit volatility may be greater than it had been in the past, in view of the increased role of high-frequency traders, decreased inventories of bonds held by broker-dealers, and elevated assets of bond funds.”
barrons.com
Following the release of FOMC minutes, the Vanguard FTSE Emerging Market ETF (VWO) and the iShares MSCI Emerging Markets ETF (EEM) are flat in late afternoon trading as is the iShares JPMorgan USD Emerging Markets Bond ETF (EMB).
The Fed staff noted rising equity prices, especially in China, and risk from the outcome of debt negotiations between Greece — categorized as an emerging market – and its creditors.
The specific mentions of emerging markets from the April 28-29 Fed committee minutes:
“The staff discussed the risks to financial stability associated with the possibility of substantial unanticipated changes in longer-term U.S. interest rates, including the scope for a sharp increase in such rates to affect financial conditions in emerging market economies.
A number of other risks were noted, including geopolitical tensions and the potential for an increase in financial strains related to the negotiations between Greece and its official creditors … Economic growth in both advanced foreign and emerging market economies appeared to slow, on balance, in the first quarter of 2015.
Global trade and industrial production weakened. Among advanced economies, output growth declined in the United Kingdom and economic indicators for Canada and Japan also pointed to slower growth in the first quarter.
In contrast, real GDP growth seemed to have increased in the euro area. In emerging market economies, real GDP growth slowed sharply in China and indicators of activity weakened in Mexico and Brazil, but real GDP growth picked up in some emerging Asian economies. Inflation remained low in most economies, partly as a result of earlier declines in oil prices ...”
Of note for bond investors: “In their discussion of financial market developments and financial stability issues, policymakers highlighted possible risks … it was suggested that the tendency for bond prices to exhibit volatility may be greater than it had been in the past, in view of the increased role of high-frequency traders, decreased inventories of bonds held by broker-dealers, and elevated assets of bond funds.”
barrons.com
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