EU investors fear QE tapering hit to emerging markets

The end of quantitative easing by the US Federal Reserve has raised concerns among European investors about the effect on emerging markets from a decrease in liquidity, according to Fitch Ratings.

The agency’s latest quarterly investor survey, which represents views of managers of some €5.6trn in fixed income AUM, said that these concerns were most focused on sovereign and corporate credits that are seen as “vulnerable”. These involve countries with high interest rates, low foreign reserve buffers, and high levels of leverage. Among those identified by Fitch include Hungary, Jamaica, Lebanon, Mongolia, Turkey and Ukraine.

However, some two-thirds of those surveyed said that a tapering of QE could increase volatility in the amount of money flowing in and out of emerging market bond funds through the rest of 2013.

A similar ratio of respondents said they believed the credit conditions for emerging market corporates will deteriorate – twice the ratio recorded in the last quarterly survey (30%).

Such deterioration could hit investment plans of companies that have yet to tap debt markets, Fitch suggested.

“Commodity and infrastructure companies will be among the biggest emerging market debt issuers over the next year, due to capex investment needs. If liquidity were to deteriorate we could see a widening performance gap between companies that have already tapped cheap funding and those that still need to, or which might have to scrap investment plans.”

About a fifth (21%) responded that flows to emerging markets will decrease because of political risk.


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