Dollar Keeps Citi and Morgan Stanley Wary of Emerging Markets

Turkey stands alone in emerging markets as economic woes deepen

Photographer: Nicole Tung / Bloomberg

Emerging market investors reeling from last month’s losses are heading into the first full week of April bracing for further pain fueled by higher US Treasury yields.

On Friday, Stronger-than-expected US employment data led traders to trade at a earlier start of Federal Reserve rate hikes. That fuels concerns that the higher returns offered by risk-free investments in the world’s largest economy could draw even more money away from emerging markets. Demand for developing country assets declined at the end of March. Flows to equity funds fell to less than a third of the levels seen in February and bond funds closed the first quarter with more outflows, according to data compiled by EPFR Global.

Morgan Stanley remains bearish on emerging market currencies, saying that The slow pace of vaccine launches in many developing economies threatens to ensure that growth in developing economies will lag relative to the US Meanwhile, Citigroup Inc. expects higher US returns and a resilient dollar. to put more pressure on the asset class in the coming months.

“This quarter can be a big one for the dollar and not necessarily surprising for emerging markets,” said Luis Costa, head of strategy CEEMEA at Citigroup based in London. “We don’t think the US curve has finished tightening. Between now and June / July, we could see one more stretch here in yields. “


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