Investors shouldn't fear the impact of central bank moves on emerging markets since these economies are in a better place than in recent years to deal with changing monetary policies, money management executives said.
"I think emerging markets are in much better shape to absorb this gradual tightening of the Fed," said Denise Simon, portfolio manager of emerging markets debt at Lazard Asset Management in New York. She said emerging markets fundamentals are in much better shape than previously, which is key to absorbing developed market tightening should it move at a "surprise" pace.
Ms. Simon highlighted that some emerging markets countries such as Brazil and Russia have gone through recessions and seen growth decline, but are beginning to improve.
And with these markets in better shape, investors need not fear the Federal Reserve's move toward tightening monetary policy — with three interest rate hikes expected for 2018 and more beyond.
More than four years ago, then-Fed Chairman Ben Bernanke's first mention of tapering in May 2013 resulted in what's known as the taper tantrum, with the MSCI Emerging Markets index dropping 15.28% in the month following his comments.
"We hear a lot about the taper tantrum and that emerging markets (as an asset class) always crumbles when the Fed hikes or starts tightening," said Paul McNamara, investment director, emerging markets at GAM in London.
"That's not how we see it. There were two big emerging markets sell-offs in the last 15 years — both when emerging markets' balance of payments took a big shock," he added.
Those events were in 2008, when exports to the developed world collapsed and emerging markets struggled to finance themselves, and in 2013, when emerging markets imports ran ahead of what they could afford. Mr. McNamara said the taper tantrum was "the catalyst, rather than the cause" in that conditions already were right for an upset.
Ms. Simon also noted that, prior to 2013's taper tantrum, spreads were expensive and there were imbalances in these emerging economies. "Now it is the opposite," she said.