None of EMB’s country exposures exceed weights of 6.08%, but some of the fund’s top country weights are among this year’s worst-performing developing markets, including Turkey and Argentina. Those countries are also boosting interest rates to prop up sliding currencies. Earlier this month, Turkey’s central bank boosted interest rates by 625 basis points to 24%.
“This rate increase was a welcome and necessary first step towards exiting the ongoing Turkish lira crisis,” said Markit in a recent note. “The immediate market reaction was one of relief, with bond spreads narrowing and the lira rallying against the US dollar and the euro. The degree to which the TCMB increased the repo rate was a positive surprise, a more aggressive action to get in front of annual inflation than IHS Markit and many observers had anticipated.”
In an effort to stem the slide in its peso and to rebuff persistently high inflation, Argentina’s central bank recently boosted interest rates to a staggering 60%, among the highest in the world.
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