Asia less vulnerable as rates go up
Of the three emerging market regions that were studied, currency mismatch is becoming less positive in Eastern Europe and more negative in Latin America, while showing improvement in Asia.
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THE monetary policy stimulus by developed economies' central banks released significant liquidity into the global economy. The side effect was that interest rates across the world dropped and investors resorted to a search for yield.
Emerging markets (EM) benefited in this ample liquidity environment with better fundamentals relative to the past and an enticing carry return relative to developed economies.
Portfolio inflows and debt issuance picked up as EMs took advantage of favourable liquidity conditions and stronger EM currencies. Debt issuance in hard currency was propelled to unprecedented levels.
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