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Another look at the fragile five

Market volatility in the five vulnerable economies was muted during December, when US interest rates were raised.

When the US Federal Reserve merely started talking about tapering in May 2013, Indonesia and India became part of the “fragile five” emerging markets (along with Brazil, South Africa and Turkey) meaning those countries with a strong reliance on foreign capital flows.

Currency devaluations versus the US dollar were the result of the taper talk. Capital outflows from those emerging markets followed and volatility increased in their stock markets, with Indonesia and Turkey diving more than 20%.

May 2013 – end of December 2013:



The US Federal Reserve plans four more rate hikes in 2016, although the market expects one or two, if any. But expectations for a rate hike seemed to be already priced into the five emerging equity markets.

In mid-December 2015, when the US Federal Reserve hiked interest rates by 25 basis points — actual tightetning as opposed to talk of tapering — the fragile five markets were far less volatile:


 The December rate hike was well-forecasted by the markets, although markets still had consolidation in the weeks after, said Hyung Jin Lee, head of Asian equities at Barings. He nonetheless believes rate hike expectations are reflected in stock markets and stock prices in Asia.

“In so far as Asia is concerned, even if we get further rate hikes out of US Fed, Asia is in a better position relative to other regions in world, in terms of increased market volatility. Better than in 1997, 2007 and 2013.

“There was so much volatility in those years that the governments and corporations in Asia have learned their lesson. Blue chip companies in Asia are essentially net cash already, and some of the weaker countries – India and Indonesia with twin current account and fiscal deficits — are much improved.”

Part of the Mark Allen Group.