Flash: What the Fed’s pass on tapering means for EM - HSBC

FXstreet.com (Barcelona) - Emerging markets are set to trade under less pressure after the shocking decision by the Fed to postpone any tapering until the US economy show further evidence of improvement, notes the HSBC Global Research Team.

Key Quotes

"The Fed’s decision to keep the current pace of asset purchase, for now, does a lot to ease the pressures existing on EM assets, or at least, to provide investors some room from where to reassess valuations again with less pressures. The idea of a quick normalization in rates in the US was at the core of the outflows seen from emerging markets dedicated funds since May."

"Since the financial crisis, the goldilocks scenario for EM assets has been one of a not too hot-not too cold US (and global) economy. This scenario keeps risk aversion shocks in check and supports the ‘hunt for yield. The Fed ‘pass’ suggests that this scenario, while weakened, is still alive. "

"Since May the market has been operating under the sense that it is not about the ‘if’, but the ‘when’ financial conditions will ‘tighten’. The Fed assessment reaffirmed that ‘tapering’ will eventually come, so things will no longer be as before. However, for EM, and given the alternatives, the Fed ‘pass’ is a good scenario."