Fed Easing, Geopolitical Risk, and Returns in Emerging Markets: What’s the Connection?
With local currency debt from emerging markets likely to offer the best returns for investors once the Federal begins lowering interest rates, what role does geopolitical risk play?
In this piece published in the Journal of Emerging Market Finance, the authors carve our four ‘principal components’ of our ICRG and assess their impact on equity prices for 28 developed and emerging market countries from 2001 to 2015.
Among the findings: ICRG’s ‘Government Stability’ risk metric produces a negative hedge in the all-country sample. ‘Socio-economic conditions’ produces the highest positive hedge return. ‘Ethnic’ and ‘Religious Tensions’ contribute a positive hedge return of 5.6% p.a, of which 6.7% p.a. is related to emerging markets. A similar trend is detected for ‘Religious Tensions.’
(https://lnkd.in/dfhD6WQU)
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