Sep 28, 2026 · 10 min
Global liquidity outweighs Fed hikes for emerging markets
Top of the Morning: Emerging Markets - Fed hikes matter, but global liquidity matters more
The outlook for emerging-market equities and bonds depends less on the Fed alone than on whether global liquidity, carry, and fundamentals remain supportive.
- 1Emerging-market equities have largely priced in expected Fed hikes, while earnings growth supports their resilience.
- 2Emerging-market bonds benefit from carry, tighter credit spreads, and improving debt-market fundamentals despite higher U.S. yields.
- 3A more aggressive-than-expected Fed tightening cycle, potentially linked to AI investment and supply pressures, remains the central risk.
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Alejo Czerwonko identifies a more aggressive-than-expected Federal Reserve hiking cycle as the main risk to the otherwise resilient emerging-markets outlook.
The brief
Alejo Czerwonko and Dan Cassidy frame the central question: how much do Federal Reserve rate hikes matter for emerging-market assets when global liquidity is broader than U.S. policy?
Czerwonko argues that emerging-market equities can withstand anticipated hikes because markets have largely priced them in, while strong year-to-date performance and earnings growth remain supportive.
The bond picture is also constructive: dollar-denominated emerging-market debt has stayed positive as carry, tighter credit spreads, and improving fundamentals offset higher U.S. yields.
The key threat is a more aggressive Fed tightening cycle than markets expect, potentially driven by large AI-related capital spending plans and supply-side pressures.
The episode’s broader takeaway is that emerging-market resilience rests on the interaction of Fed policy, global liquidity, carry, and domestic fundamentals—not any single rate decision.