Even if a number of pundits have the opinion that emerging economies can likely withstand a Fed rate hike, it would absolutely matter for all as investors have already began to flee with the tightening in financial conditions. On the other hand concerns about emerging market fundamentals have risen with the news signs of China’s slowdown that has intensified fears that the ongoing emerging economies growth deceleration is not over yet. This unsurprisingly led downward revisions to growth projections.
The past decade’s pattern of nearly all emerging economies growing quickly was a historical anomaly fed by easy money. At this stage it would be a horrible mistake to look at emerging markets as a homogeneous asset class as desynchronized cycles offer great investment opportunities once a selective approach is employed.
Further divergence within emerging economies is likely to continue to be a major theme and the existing divergence in the pace of GDP growth across those economies will widen primarily due to continuing downward pressure on commodity prices, the influence of divergent monetary policy, and differing degrees of success from structural reforms in each economy.
Turkey has been an emerging market star over the past decade. However things seem to change after all with rising risk sentiment. With regard to this it would be a useful tool to determine how the country actually has performed during the golden era of developing economies in light of the past macroeconomic performances.
The chart above shows the real GDP growth differential between emerging economies and Turkey based on annual growth rate. Apparently Turkey has been able to outperform its peers in 4 out of 11 years researched (6 out of 11 when China excluded). More importantly Turkey simply acting like a high beta market during the period of low growth would foreshadow the possible outcome of the next slowdown era.