By Carolyn Cohn
LONDON, July 4 (Reuters) – Risky emerging stock markets have
had a storming rally in the past month on a more upbeat view of
the world’s prospects, though their fate remains inextricably
linked to that of the euro zone.
The growth outlook for China – the export destination for
emerging commodity producers like Brazil and Russia – and the
impact on the oil price of tensions over Iran are also major
risks as emerging and developed economies become more
interdependent.
Emerging stocks have leapt since confidence began to grow in
early June that Greek voters would reject more radical parties
at their mid-June elections, staving off the unprecedented
threat of an exit from the euro zone and encouraging investors
to seek higher returns from riskier trades.
The markets got another shot in the arm late last week, when
euro zone leaders surprised investors with the extent of the
progress at their summit in tackling the bloc’s protracted debt
crisis.
“Emerging markets are very much hostage to developments in
Europe,” said Gabriel Sterne, economist at brokerage Exotix.
“A lot of this is not based on country specifics, but on the
euro crisis.”
Because emerging markets tend to be less liquid, their
prices move more sharply than developed markets when investors
decide to buy or sell. Such investment decisions often depend
largely on how easy – and therefore cheap – it is to raise money
in the financial markets.
The higher yields which emerging debt markets offer become
particularly attractive when low interest rates in the developed
world encourage investment.
Continued…
