The prospect of a Federal Reserve rate hike looms large.
On Thursday we will learn whether nearly 10 years of record low interest rates in the world’s largest economy are finally over.
The date is a landmark because for much of this year consensus among economists has been for a September lift-off. The trouble is, last month that consensus started to crack.
The argument ran that turbulence in stock markets, commodity prices slashed to multi-year lows and still-poor global growth mean the Fed will not be hiking rates in September after all.
Read more: Are emerging markets in for a bumpy ride?
Economists remain divided. However, one lingering consensus is the notion that emerging markets are finished.
The thinking goes that these feeble economies have so much debt issued in dollars they will not be able to withstand even the teeniest 0.25 per cent upwards move in US base rates.
We have been here before. Back in 2013 when the Fed started to scale off its QE stimulus programme, the ensuing “taper tantrum” saw investors rush to exit the five markets deemed most vulnerable – Brazil, India, South Africa, Turkey and Indonesia. It was epic. It was, we were told, the end of emerging market investing.
And yet today it’s not difficult to find respected economists who freely admit that they can’t even remember the names of the so-called “fragile five”.
It is true that China’s growth is slowing considerably, but at even a very low estimate of six per cent this would be double the world’s three per cent figure.
It is also true that Brazil is mired in recession and grappling with the worst political scandal in its history – although it could also be the tipping point that finally spurs the country to get its act together.
Russia remains under pressure from the combined effects of European sanctions and the low price of its chief export, oil, but elsewhere things look brighter. Mexico, India, Turkey and Indonesia, for example.
There’s no saying whether the Fed will raise rates or how the immediate aftermath will impact emerging economies.
But recent history shows it would be wise not to bet against them. Despite the last decade of negativity, a basket of equity investments in the emerging world is still up 91 per cent over 10 years.
The good ship EM will ride on, and those passengers who stay the course could benefit in years to come.