Salient to Investors:

Steve Ashley at Nomura said:

  • The worst is over for Asian emerging markets but individual countries could continue to suffer significant challenges.
  • It is very positive for the next 5 to 10 years as the amount of investments by funds in these countries catch up with the growing size of their economies.
  • The markets have been addicted to QE so it is important that normalization takes place. The market should not be frightened of normalization because historically, the first half of the tightening cycle is normally accompanied with reasonable growth and reasonable performance by risk assets. Only toward the end of the tightening cycle do you see a tail-off in risk asset performance.

The market value of shares traded in China accounts for 37 percent of GDP versus 107 percent for stocks in the US,  45 percent for Indonesia, and 54 percent for India

The IMF predicts developing Asia will expand 6.9 percent in 2013 versus 1.7 percent for the US.

Stephen Jen at SLJ Macro Partners expects more losses for emerging markets because investors will withdraw funds as the Fed pares stimulus. EPFR Global said $44 billion has been pulled from emerging-market stock and bond funds globally since the end of May.

Rohit Arora at Barclays said investor sentiment is very fragile in emerging markets as investors are questioning how countries with higher current-account deficits will fund their deficits in an environment of tight liquidity when the Fed starts to tighten.

Investors see a 59 percent chance the Fed will raise the federal funds rate to 0.5 percent or more by January 2015.

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