Source: World Economic Forum
Interesting discussion from WEF:
Historically, the cycle of interest rate hikes by the Federal Reserve has been a key factor in the pricing and volatility of relatively risky and illiquid assets, such as fixed income securities issued and traded in emerging markets. If anything, recent turmoil in the global debt, equity and currency markets once again questions the viability and sustainability of the economic growth in some emerging economies and emerging financial markets.
If history can be a useful benchmark, three types of risks may emerge in emerging economies in response to interest rate hikes:
1. Capital flight
2. Asset price fluctuation
3. Currency devaluation