Central Europe’s resilience to EM sell-off.
Central Europe’s economies have withstood intense recent selling pressure in emerging markets (EM), the longest sell-off since the 2008 financial crisis. A confluence of idiosyncratic and generic vulnerabilities has significantly undermined investor sentiment towards EM assets as a whole over the past several months. Yet the Polish zloty, one of the most liquid EM currencies, has risen by 2.6% against the dollar since end-May, and Hungary’s ten-year local bond yields are still significantly below their levels in the aftermath of the ‘taper tantrum’ in May 2013.
Despite the 27% decline in Turkish equities since end-June, negligible trade links with Central Europe will limit financial contagion.
In Central-Eastern Europe, Romania will be vulnerable because of its wide fiscal and current account deficits.
Ten-year US Treasury yields are trading above 3%, increasing the risk of a sell-off in global debt markets if yields rise more sharply.
