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Analysts at Nomura continue to see several major risks to EM from higher US yields, a global QE unwind and global trade tensions, while oil prices continue to break higher, which they think is especially negative for Asia given its high oil import dependence.

Key Quotes

“When it comes to who is most exposed to EM risks, we find that 17% of US investor overseas holdings are in EM assets, of which the large majority is in Asia. Euro area investors also have a large amount of EM holdings, but these constitute just 6% of their overseas portfolio holdings which can reduce sensitivity to EM risks. For Japanese investors it is just 5%.’

“So far EM blow-outs have been concentrated in current account deficit currencies that do not represent the largest part of non-residents’ holdings. Therefore, we think relative safehaven inflows into the G10 will likely remain subdued until EM pressures spread into broader EM markets.”