How does Fed decisions impact emerging markets?

Q: This entire liquidity exercise has had an impact on emerging market economies. Just explain what is the connection between what the Federal Reserve chose to do, how it has impacted emerging markets, i.e. markets like India and why we are so sensitive to what the Federal Reserve is saying about these flows now?

A: This is something that is almost a wee bit of a figment of people's imaginations. If we look at the period of 2009 through 2013 what you will find is the emerging market index has actually been underperforming developed markets for almost the last three years. Over the last two periods of US QE, the emerging market index has gone down. So we keep hearing about how emerging markets have been the great beneficiaries of QE. There is really not that much evidence that that is the case. There has certainly been some markets which have gone up a lot over the course of the last few years, Southeast Asia is a very good example of that, but not for quite good reasons they have been growing fast, their corporate earning cycle has been very positive. They had attractive companies, well valued companies, but they have now become quite expensive. Other countries which have not done very well at all and whose stock markets have not done well, places like China have actually been slowing down over the course of the last few years and rather than QE affecting them it has really been economic fundamentals. So I am skeptical that QE has actually had that big an impact on emerging markets. It is an impact on sentient and now we are beginning to see that sentiment reverse, but it is reversing in markets that were actually already highly valued anyway.