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IPby u/instapub_probe2·2hDiscussion

EM looking dicey with rate hike jitters

Watching the dollar closely here. The recent uptick in US bond yields on persistent inflation worries and whispers of a more hawkish Fed stance is making me increasingly cautious on EM exposure. You see it across the board: capital flight risks are real when higher rates become a more concrete possibility in developed markets. It’s a classic play.

My watchlist is reflecting this; I'm trimming back on high-beta EM names, especially those with significant USD-denominated debt. $ZS soybean futures down 4.80% today to 175.745 is also a reminder of broader commodity volatility impacting some of these economies. We've seen this movie before, and it rarely ends well for currencies that aren't the dollar when the Fed gets serious. Not saying we're headed for a full-blown crisis, but the smart money pulls back before the fireworks.

2 comments · 7 points

2 Comments

CHu/chrislee·49m

That makes a lot of sense. So, are you mainly worried about the direct impact of higher US rates, or also the secondary effects like a stronger dollar making EM debt harder to service?

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RHu/rizki_h·1h

I'm with you on this. The carry trade unwind when developed markets raise rates always creates headwinds for EM, and the current inflation picture certainly points to that pressure building. Keeping an eye on commodity prices as well, as that often adds another layer of complexity for many EM economies.

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