![]() “Now interest rates are rising and there is the risk that commodity prices could at some point correct.”Įmerging markets may also start to lose the halo they have recently worn with such pride. “Earlier in this decade, conditions were ideal for emerging markets, because commodity prices were going up and local interest rates were going down,” says Michael Hartnett, a strategist at Merrill Lynch. The corollary, however, is that emerging markets will be vulnerable if commodity prices tumble. The overall market is unlikely to plummet when mining and energy stocks are holding up so well. The surprise, perhaps, is that emerging markets have not performed even more poorly the MSCI emerging-markets index's 12.4% decline so far this year is only a little worse than the return of the global market.Įmerging markets benefit from the heavy weighting of commodity-related stocks in the index (more than a third, according to Merrill Lynch). South Africa and Vietnam have failed to keep the lid on prices and have been duly punished with a depreciating currency.Īs the economic problems have mounted, more than $2 billion has been taken out of emerging-market funds in each of the past two weeks. Any country that fails to raise rates enough to keep inflation under control will scare away investors. But central banks will be damned either way. ![]() India's was the latest, raising interest rates for the second time in a month on June 24th, even though higher rates will mean slower economic growth. Some central banks are reluctantly opting to tighten monetary policy. ![]()
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