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The rise in the US dollar may increase funding pressures in emerging market (EM) countries, but we do not foresee a generalized crisis. Concerns relating to the external vulnerabilities of EM are valid, though not all EM countries face the same challenges, and considerable buffers have been built up. The rise in private sector leverage is, in our view, a more pressing concern. Tighter financial conditions may, therefore, lead to impairment of domestic private sector balance sheets, posing a challenge to EM economic growth.
Markets have been focused on external vulnerabilities of EM economies ever since the so-called “taper tantrum” in the spring/summer of 2013. Moreover, the strength of the US dollar has raised concerns over a generalized hard-currency funding crisis for EM issuers.
Source : Invesco Real Estate
