It’s 1998 again in emerging markets, and it’s good: The best parallel with recent events – major shock (this time, the UK vote), DM central bank liquidity reassurance and market surge – is, in our view, the collapse of Long-Term Capital Management (LTCM) in September 1998. In addition to a bailout for LTCM, the Fed ‘turned on a dime’ then and cut rates by 75bp in two months; risk markets took off. While MSCI GEMs fell much more before Sept. 1998 (Asia and Russian crises) than recently, EM rose by 31% in two months after LTCM and by 120% by March 2000. As usual, the USD played a role; after a four-year 34% rally to August 1998, the $ TWI fell by 11% after LTCM. The extremes will be hard to repeat, but the earlier episode confirms how liquidity is a ‘great healer’… UBS analysts on Tuesday, on the 26 per cent rally in the MSCI index of emerging-market stocks since January. There is the small matter of the Fed not actually cutting rates so far this year — and that in 1998 far more markets were pegged to a dollar that had been rising for much longer.
Joseph Cotterill considers the following as important: Emerging Markets, FED
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It’s 1998 again in emerging markets, and it’s good: