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Special report: Emerging markets

Fed moves not necessarily felt all over the world

Julian Mayo said some emerging markets are not in sync with the Fed.

Much like the impact of the Federal Reserve's moves on emerging market countries, executives said there is little need to fear moves by domestic central banks in terms of spillover into other economies.

"The Fed is looking to raise rates but at the same time some emerging markets are actually moving in a different direction," said Julian Mayo, London-based director at Fiera Capital Corp.

"About half the countries in our (emerging markets) universe were able to ease (last) year because inflation had come off," said Denise Simon, portfolio manager of emerging markets debt at Lazard Asset Management in New York.

"There will be some countries that will tighten along with the developed world and others that can ease as they are coming from a different part of the cycle; others will stay on hold,'' she said. "But if the pace of the Fed ends up being tighter, it will leave countries less room. If these countries push the envelope and ease anyway, most likely (we will) see steeper yield curves and currencies that depreciate. We will have to watch the central banks don't go too far and too against the (Fed's) cycle — but so far, the countries that have eased had good reason."

Jim Barrineau, co-head of emerging market debt at Schroders PLC in New York, said most emerging markets have completed rate-cutting cycles, with Mexico standing out more or less alone in its decision to raise rates at the end of last year.

He thinks central European emerging market countries are likely to "nudge up rates in 2018," while Brazil and Colombia are at the end of a rate-cutting cycle.

"So we may get this inflection point where central banks in emerging markets gradually go from rate cutting in 2016 and 2017, to rate hiking in '18 and '19. That makes the outlook for getting returns from the local rate side a little more problematic," added Mr. Barrineau.