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COLUMN-"Taper Tantrum II": A less scary sequel for emerging markets: McGeever
2017年7月4日 / 下午1点10分 / 5 个月前

COLUMN-"Taper Tantrum II": A less scary sequel for emerging markets: McGeever

(The opinions expressed here are those of the author, a columnist for Reuters.)

By Jamie McGeever

LONDON, July 4 (Reuters) - The fright factor in sequels is often less acute than in original features.

In May 2013, emerging markets recoiled in horror as the U.S. Federal Reserve signalled it was time to stop pumping them full of new cash, bearing the brunt of a “Taper Tantrum” that rippled around the globe.

As other major central banks look to follow suit four years on, “Taper Tantrum II” is unlikely to pack the same shock value - at least not for developing economies jarred by the original.

Compared to May 2013, emerging market currencies are significantly lower, borrowing rate premiums wider and overall asset valuations less frothy. With current account deficits more manageable, emerging economies are also less vulnerable to global shocks or sudden reversal of capital flows.

Their debt levels have risen. The Institute of International Finance shows emerging economies have ramped up an extra $3 trillion of borrowing over the past year alone to a $56 trillion total while debt in mature markets had receded.

But developing world exposure to non-dollar debt is much smaller and the actions of the European Central Bank or Bank of Japan are unlikely to match the impact of the Fed - whose policy trajectory remains the biggest threat but where gradual tightening has been under way for years.

Data from the Bank for International Settlements shows that dollar credit to non-financial customers in emerging markets was $3.6 trillion last year, about a third of total dollar credit outside the United States.

The euro- and yen-denominated equivalents were just 600 billion euros and 16 trillion yen ($143 billion), respectively.

TAKE TWO ...

That’s not to say emerging markets are completely insulated. If last week does prove to be a game changer, a tightening of central bank largesse across the world tends to lift U.S. Treasury yields regardless of any change of Fed thinking.

Many of the world’s top central bankers last week at the European Central Bank’s annual forum in the Portuguese town of Sintra indicated that the post-crisis era of zero interest rates and powerful quantitative easing stimulus was drawing to an end.

Analysts at Deutsche Bank dubbed it the “Sintra Pact”.

Coordinated or not, the ECB, Bank of England, Bank of Canada and even Bank of Japan are, to varying degrees, talking along the same lines and looking to take their feet off the stimulus pedal.

In response, long-term borrowing rates in the four major reserve currencies jumped suddenly, with yields in German Bunds, British gilts, U.S. Treasuries and Japanese government bonds all recording some of their biggest weekly rises of 2017.

But the original “Taper Tantrum” hit emerging markets so hard because their heavy reliance on dollar borrowing left them as, or even more, vulnerable to an outsize surge in the dollar exchange rate as any rise in borrowing rates themselves. Between early 2013 and the time of the first Fed rate hike in December 2015, the dollar index soared 25 percent.

Emerging stocks fell 15 percent in less than a month and by early 2016 they had lost around a third of their value.

JP Morgan’s emerging market EMBI bond index fell 10 percent between May and September 2013. The EMBI sovereign yield spread widened almost 100 basis points in barely a month to 366 bps from 270 basis points.

But if it’s now a case of the ECB or BOJ catching up, the singular dollar surge is less likely and that dollar dampening effect should cushion the impact on emerging markets too.

What’s more, developing markets appear less stretched.

Stocks have rallied strongly in the past 18 months but remain below highs of 2015, 2014 and 2011 and well short of the records of 2007. That contrasts with the all-time records Wall Street has been grinding out all year.

And while developed market bond yields popped higher last week in response to signals from Sintra, the EMBI yield spread actually narrowed slightly and EM stocks barely budged.

‘Taper Tantrum II’ may yet become uncomfortable viewing for emerging markets, but it won’t be the video nasty of four years ago. (Reporting by Jamie McGeever; editing by John Stonestreet)

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