Emerging debt-Wary but resilient markets eye US recession risk

Emerging markets felt the heat but were not seriously burned on Tuesday after U.S. shares fell sharply on recession fears despite the U.S. Federal Reserve's largest cut in a key interest rate in 23 years.

Dollar-denominated sovereign bonds and a broad measure of emerging market stocks fell, albeit above earlier lows. On the positive side, Latin American stocks and currencies rallied.

In volatile trade, global markets recovered ground after the Fed's surprise cut in the federal funds rate by three-quarters of a percentage point.

Following Monday's carnage in international markets, brought on by U.S. recession concerns, the Fed brought the rate down to 3.5 percent. U.S. markets were closed on Monday for a holiday.

Historically, emerging markets are putting in strong performances given the volatile environment. In the past, their less mature economies and markets would have suffered bigger routs. This has led some investors to believe emerging markets have "de-coupled" from developed markets.

"On a trend basis, a multi-month or even multi-year basis, I would expect emerging markets will probably do fairly well, in that after this correction their growth is to hold up reasonably well, better than what we are seeing in the U.S. and Europe," said Nick Chamie, head of emerging market research at RBC Capital Markets in Toronto.

"Over the long term, that is going to be the case, but in the short term I think they are still quite vulnerable to significant sell-offs," he said.

"I think the whole de-coupling myth is well on its way to becoming debunked," Chamie added.
Source : http://www.reuters.com