BlackRock Says Brace For Taper Tantrum Redux In Emerging Markets

The emerging-market swoon touched off by the so-called “taper tantrum” two years ago is destined to repeat itself, BlackRock Inc. says.

When the Federal Reserve raises interest rates, the selloff will be every bit as painful as the rout that ensued in May 2013, when then-Chairman Ben S. Bernanke suggested the central bank would soon wind down its bond-buying program, according to the world’s largest money manager. Developing-nation debt sank as much 10 percent in the wake of the comments while currencies from India’s rupee to Turkey’s lira plunged.

“Every time the Fed hikes interest rates, emerging markets tend to face severe tension,” Amer Bisat, a fund manager in BlackRock’s Americas fixed-income group, said by telephone from New York. “Even though we’re better prepared for it today, it’s still going to be a major shock.”

The warning comes as the Fed moves closer to raising its benchmark rate for the first time in a decade. Almost three quarters of the 59 economists surveyed by Bloomberg now expect the central bank to lift the key rate from between zero and 0.25 percent in September.

Bisat, who oversees emerging-market investments in some of BlackRock’s largest funds, including the $30 billion Strategic Income Opportunities fund, said nations including Mexico, Poland and South Korea are best-positioned to withstand the likely exodus from emerging markets when the Fed boosts rates because they boast “strong balance sheets.”

‘Broadly Strong’

“There are some countries that may not have the same strength but offer an even higher premium and are fundamentally broadly strong,” he said. “India and Indonesia stand out. They may not have pristine balance sheets, but are dynamic countries that will participate in the global growth recovery.”