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Understanding the sell-off in emerging market assets and get ready to be greedy

The move higher in US interest rates and the US dollar was the catalyst for the sell-off in emerging market (EM) assets that began in April. It intensified as tighter external financing conditions exposed Turkey and Argentina’s fundamental weaknesses. 

The sell-off will end when emerging markets have adjusted to the restricted availability of international capital and the risk transfer of emerging assets from potentially fickle ‘search for yield’ investors to those willing to bear the volatility associated with the asset class is complete.

But it is a painful sell-off, not a systemic crisis and its conclusion will likely offer an attractive entry point for those investors willing to “be greedy when others are fearful”.

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