Why a Fed Rate Hike Won't Undo Emerging Markets This Time

The last Federal Reserve rate hike was bad for emerging market bonds, but this time is different, said Simon Lue-Fong, portfolio manager for the Ivy Emerging Markets Local Currency Debt Fund. "The difference is last time the market expected the start of a cycle, and what was envisaged was perhaps a longer horizon of rate hikes," said Lue-Fong. "This time the market is increasingly pricing for a short cycle, and therefore we do not believe the next rate will be as disruptive. In fact, it could be one more and done." Looking ahead to 2017, Lue-Fong said the big gains this year would be hard to replicate next year. Lue-Fong said growth has been a big worry for EM and will continue to be. The good news is that growth has now stabilized and is not moving lower, in his view.