Why China is an epicenter of emerging market risks

In a bid to moderate surging commodity prices and inflationary pressures, China has taken on several actions including releasing strategic reserves and instituting overseas trading curbs, Barron’s noted. That has sapped some of the momentum from the commodities rally, dampening the picture for resource-intensive developing markets.

But rather than derailing upward moves in commodities like oil and copper, Gavekal Research analysts argued that China has only pressed the pause button, particularly as the country is more of a “price taker” than a “price setter.” With data indicating decade lows in stockpiles for those commodities, the analysts said the recent pullback in commodities is bound to reverse.

Across the Pacific Ocean, analysts have also flagged reservations about Federal Reserve actions as another driver of risk. DataTrek’s Colas said worries over the timing of rate increases could put emerging markets under pressure.

BlackRock Investment Institute strategists also warned clients in a note that transitory spikes in rates could challenge developing markets. They weren’t so concerned about the Fed causing a 2013-type taper tantrum by dialling back its stimulus, however, as they believed EMs are less vulnerable today than they were before.