If the Fed doesn’t care about EM it should at least pretend to

The most shocking part of the US Federal Reserve’s decision to taper another $10bn of quantitative easing last week was not that it continued steam roller-like with its plan despite the volatility in the emerging markets. It was that it failed to even acknowledge the crisis EM is facing as a result of its actions.

  • By Francesca Young
  • 04 Feb 2014
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In the subsequent fury from some EM countries, the Fed replied that it is there to protect the US economy. That was a fair if cold hearted point. But it would have cost the Fed nothing to acknowledge the battles going on elsewhere, even if it has no immediate plans to do anything about it, and it may have done it some favours to do so.   

So far, the EM crisis has done nothing but benefit the US, helping drive US Treasury yields lower as investors embark on the latest version of the flight to quality. The crisis in EM would have to become much worse — something that has not been ruled out by commentators — before it becomes the US’s problem, either in terms of export revenues or financial contagion to its banks, which are big investors in the emerging markets.

But before it comes to that, there is some argument that altruistic motives should play a part in the Fed's decisions. The collapse of Lehman Brothers, a US bank, started the rounds of US quantitative easing that are to blame for flows into emerging markets and the pickle EM countries find themselves in now that this liquidity is being removed. Co-operation on monetary and fiscal policy existed at the G20 level in 2009, why can it not now?

Waterfall of cash

Since then, some emerging market countries can be blamed for using that fresh waterfall of cash to put off the structural reforms, but the US has also contributed to the problem and if life was fair, the US would take responsibility for its part. But it’s not. The US is too big to fail. Think of it not as a country but as the biggest investment bank in the world. When it struggles, the rest of the world struggles. When it’s doing well, it’s a self-interested profit producer, not a charity.

The Fed doesn’t need to care about EM for now, but pretending that it does could help that market all the same. In the Fed’s statement last week, words that acknowledged rather than ignored the plight of EM countries could have had a powerful effect in helping to stabilise the sell-off in some of these countries without actually having to do anything. EM needs to be reassured that if the carnage gets too bloody, someone will step in — a sort of global Yellen put that self-perpetuates stability.

And from a political perspective too if not a financial one, the US has a duty to consider itself a part of a wider global community. It is proudly a country that uses its strength to help others for humanitarian reasons. The US also often leans on other countries to do what is right for the world as a whole even it is difficult for those countries to do so as individuals — climate change agreements are a good example of this.

At this point, the decision to continue with the taper was the right one for the US and for the global economy — QE forever will do no long term good and sticking to a schedule despite volatility reiterates the determination with which the Fed is tapering.

If the EM crisis escalates to a point where the US’s interests are indeed threatened, the Fed may then deviate from its schedule. Or that point may never come. But so determinedly ignoring the emerging markets in the presentation of its decision is a not only a shame-faced fib by omission that these countries don’t matter at all, but a slight to a part of the world that the US is otherwise so proud of protecting.    

  • By Francesca Young
  • 04 Feb 2014

Bookrunners of International Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 68,616.74 313 9.80%
2 HSBC 62,421.06 355 8.91%
3 JPMorgan 58,555.18 253 8.36%
4 Deutsche Bank 32,702.37 137 4.67%
5 Standard Chartered Bank 30,732.40 217 4.39%

Bookrunners of LatAm Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 19,751.56 59 7.09%
2 JPMorgan 16,300.95 61 5.85%
3 HSBC 15,707.62 42 5.64%
4 Bank of America Merrill Lynch 12,634.55 50 4.53%
5 Santander 11,584.64 45 4.16%

Bookrunners of CEEMEA International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 26,997.79 92 6.61%
2 Citi 24,968.00 87 6.11%
3 HSBC 17,697.95 68 4.33%
4 Deutsche Bank 10,385.92 29 2.54%
5 Standard Chartered Bank 10,214.05 48 2.50%

EMEA M&A Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 02 May 2016
1 JPMorgan 195.08 50 10.55%
2 Goldman Sachs 162.26 37 8.77%
3 Morgan Stanley 141.22 46 7.64%
4 Bank of America Merrill Lynch 114.20 33 6.18%
5 Citi 95.36 35 5.16%

Bookrunners of Central and Eastern Europe: Loans

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 ING 3,133.69 26 8.77%
2 UniCredit 2,986.04 23 8.35%
3 Credit Suisse 2,801.35 8 7.84%
4 Sumitomo Mitsui Financial Group 2,594.98 10 7.26%
5 SG Corporate & Investment Banking 2,301.01 20 6.44%

Bookrunners of India DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 AXIS Bank 12,906.34 183 21.63%
2 Standard Chartered Bank 5,764.36 47 9.66%
3 ICICI Bank 5,706.63 152 9.56%
4 Trust Investment Advisors 5,552.05 162 9.30%
5 HDFC Bank 2,786.90 77 4.67%