Storm brews in emerging markets as investors pull cash out
Foreign investors have begun to pull cash out of emerging markets as they begin to look less attractive when compared to the rising return from holding onto “safe-haven” US Treasuries.

Will rising bond yields sink the emerging market rally? The MSCI Emerging Markets index soared by 90% between last March and 17 February as optimistic investors bet on a strong global upswing this year. Yet higher US Treasury yields are proving a party pooper, sending the index tumbling 9% since then.
Foreign investors have begun to pull cash out of emerging markets for the first time since October 2020, says Jonathan Wheatley in the Financial Times. The higher yields on offer in emerging markets look less attractive when investors can receive a decent return from holding onto “safe-haven” US Treasuries.
Another reason emerging markets are so sensitive to US bond yields is that many businesses in emerging economies borrow in greenbacks, so higher US yields make their debt costs rise. By the same logic, emerging economies also tend to do better when the dollar is weak. Yet the US currency has so far “confounded expectations” that it would fall this year, says Paul Davies in The Wall Street Journal. It has rallied by almost 2% against other major currencies.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The jump in Treasury yields is bringing back uncomfortable memories of the 2013 “taper tantrum”, says Craig Mellow in Barron’s. On that occasion yields spiked after Fed chair Ben Bernanke “merely” suggested that he might cut back on quantitative easing (buying bonds with printed money). Emerging market stocks went on to lose “15% in a month”. In 2018, when the Fed hiked interest rates, emerging markets fell by 8%.
Better prepared?
Emerging markets are less vulnerable to a US yield spike today, says Vincent Tsui of Gavekal Research. In 2013 many had large trade deficits, high inflation and overvalued currencies. That left them vulnerable when their borrowing costs suddenly spiked. Yet none of those conditions remain this time. However, says The Economist, Covid-19 has “dramatically widened another kind of deficit: the gap between government spending and revenues”. Brazil’s budget deficit ballooned to 14% of GDP last year. Today the key worry in emerging economies is worsening “fiscal sustainability”, which leaves governments vulnerable to more expensive borrowing costs. Strategists at HSBC say that Brazil, Indonesia, Mexico and South Africa look particularly vulnerable.
Don’t be discouraged by “short-term blips”, says James Crux in Shares magazine. From “under-owned and underappreciated” Latin American businesses to Mexico and Vietnam (see page 26), which should both benefit from supply-chain diversification, there is plenty of opportunity in emerging economies. Investors should keep their eyes on a “much longer-term prize”.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
Michelin Key Hotels 2025: the top destinations in the world
The Michelin Keys have been awarded to spectacular hotels across the world. From Marlon Brando's private resort in Polynesia to a Bvlgari hotel in Tokyo, we look at some of the most extraordinary stays in 2025
-
MoneyWeek news quiz: How much could you get in car finance compensation?
The car finance scandal, inheritance tax, and house prices all made headlines over the past few days. Test your knowledge while reviewing this week’s top stories with MoneyWeek’s news quiz
-
The private equity puzzle
Listed private equity trusts still trade at large discounts, despite sales that validate their valuations
-
Why investors should avoid market monomania
Opinion Today’s overwhelming focus on US markets leaves investors guessing about opportunities and risks elsewhere
-
Can Rachel Reeves save the City?
Opinion Chancellor Rachel Reeves is mulling a tax cut, which would be welcome – but it’s nowhere near enough, says Matthew Lynn
-
Pierre-Édouard Stérin wants to make France great again
Conservative billionaire Pierre-Édouard Stérin is seeking to lead a political and spiritual renaissance across the Channel. The planning looks meticulous
-
Global investors have overlooked the top innovators in emerging markets
Opinion Carlos Hardenberg, portfolio manager, Mobius Investment Trust, highlights three emerging market stocks where he’d put his money
-
Pinewood Technologies: a drive for growth
Pinewood Technologies’ platform is one of the best in the business. Investors should buy in
-
'EV maker Faraday Future will crash'
Faraday Future Intelligent Electric is failing dismally to live up to its name, says Matthew Partridge
-
Investors should cheer the coming nuclear summer
The US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit