Mark Mobius commented on the impact of US monetary policy on the emerging markets
According to Mark Mobius, executive chairman of Templeton Emerging Markets Group, the impact of US monetary policy on emerging markets is overestimated. He said this over a June 22nd interview on Bloomberg. Indeed, markets across major developing nations (EFA) (VEA) often tend to over-react to any changes in US monetary policy, believing that all major events such as a change in the benchmark interest rate would have a direct bearing on stock performance in the emerging markets (EEM) (VWO).
Mobius believes there’s no correlation…
Mobius also pointed to there being no correlation between the Fed Rate and the Emerging markets’ index. However, data shows emerging markets do have some correlation to the Federal funds rate. As can be seen in the chart above, over the past decade, the effective federal funds rate has demonstrated a fair correlation with the MSCI emerging markets index. With a correlation coefficient of 0.39, changes in the key benchmark rate in the US (SPY) (IWM) do seem to effect stock market performance in the emerging markets to some extent.
Even recently, the US Federal Reserve has begun tightening its monetary policy stance by raising interest rates (orange line in the graph above) since the end of 2015, which was accompanied by a similar upswing (as indicated by the blue line) can be seen in the MSCI Emerging Market Index since Nov-Dec 2015.