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Fed ends stimulus: Risks for emerging markets, warns IMF
October 30, 2014, 7:01 am

File photo taken on Oct. 22, 2014 shows an open meeting attended by U.S. Fed Board Governors at the U.S. Federal Reserve in Washington D.C., capital of the United States [Xinhua]

File photo taken on Oct. 22, 2014 shows an open meeting attended by U.S. Fed Board Governors at the U.S. Federal Reserve in Washington D.C., capital of the United States [Xinhua]

IMF Deputy Managing Director Zhu Min has said the ending of the US Federal Reserve’s QE stimulus program will impact emerging markets like the BRICS differently from the earlier taper announcements which created havoc in these markets.

Speaking after the IMF and World Bank autumn meetings, Zhu said in May last year when the Fed first announced tapering of the $85 billion-a-month program, the risks were mainly macro. The announcement last year triggered a selloff in emerging market currencies, stocks and bonds and a flight to the dollar. Since then emerging markets have seen an exodus of cash, with their 20 most-traded currencies falling more than 5 percent.

This time around there will be “market risks” as in the past 7 to 12 months, emerging economies have strengthened their macro economic structures.

More than three years of Quantitative Easing policy of the US Fed Reserve, has meant an extra $650 billion have flowed into emerging markets. The IMF official said where the money goes now will have a huge impact on the emerging markets.

He adds that corporate bonds in the emerging markets now exceed the American bond market, and half of the bonds are held by the five biggest foreign funds. Changes to the funds would have a strong impact on emerging markets.

Chinese stocks opened slightly lower Thursday, tracking overnight falls on Wall Street after the US Federal Reserve made official its plans to end the stimulus program.

The benchmark Shanghai Composite Index opened at 2,371.89 points, down 1.14 points, or 0.05 per cent. The Shenzhen Component Index edged down 1.7 points, or 0.02 per cent, to open at 8,088.98.

 

 TBP and Agencies

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