How should investors play the emerging markets crisis?

NEWS ANALYSIS

A series of shock rate hikes last week poured fuel on to the fire ravaging emerging markets, with indices falling sharply and panic spreading to developed market equities.

Both Turkey and South Africa spooked investors by raising rates much more aggressively than forecast, sending shockwaves through markets. Emerging markets are now in the firing line as investors anticipating an end to QE in the US flee from debt-saddled economies, causing EM bond yields to spike and equity markets to tumble. Investors are keen to avoid taking risk in emerging markets when returns from developed equity markets are expected to remain attractive. As a result, the MSCI Emerging Markets index fell 6.58% in January, with some countries within the index seeing much bigger...