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  • We mentioned several times in the past few months that a potential rise in the US Dollar could weigh on EM risky assets, especially equities.
  • The divergence in growth expectations between the US and the rest of the World combined with the deceleration in global liquidity have both been strong drivers of the US Dollar since the start of the year.
  • This chart shows that EM equities have historically been very sensitive to the dynamics of the USD; periods of weakening USD have been associated with higher equities and vice versa.
  • Therefore, with the Fed preparing for tapering (mid-November or mid-December), preference for the USD could continue to rise in the short term, therefore increasing the downward pressures on EM risky assets.

Source: Bloomberg/MNI