Emerging currencies could suffer from the fall-out of approaching big leadership and policy changes at the US Federal Reserve.
As the new year approaches, current chairman Ben Bernanke is keeping the seat warm for his successor Janet Yellen.
Hawk-eyed analysts are dissecting her speeches and statements for an early indication of how she’s likely to approach the job.
So far, she’s given little away and appears to be aware that when the Fed speaks, the markets catch a cold.
Earlier in the year, when Bernanke announced a tapering of quantitative easing towards the end of 2014, stock markets around the world dropped overnight fearing another global financial collapse.
However, when the Fed announces the changes, emerging markets are likely to suffer as they have bought into billions of dollars of bonds to swell their economies.
But like an addict needing the next fix, sooner or later this cash is going to dry up and emerging currencies must have a Plan B to fall back on or suffer the consequences.
Economists are warning that years of QE in the US, Europe and beyond are distorting markets and economies. On top of that, doubts are building as to whether the fiscal policy has really helped at all.
The billions of freshly printed cash do not seem to have been the blue touch paper that many governments suggested would ignite their flagging economies.
Yellon moves in February – about the time the third episode of President Barak Obama’s cliffhanging showdowns with Congress is due.
This time, instead of slugging toe-to-toe over the Federal budget, it’s the debt ceiling that will be called into question.
China is also throwing a spanner in the works. The US dollar may be the international default economy, but Beijing has jealous eyes on taking the role on with the yuan.
Gradually, financial markets in Hong Kong and Shanghai are reforming and developing a more open trading model to attract outside investment.
At the same time, the worry is credit will become more expensive for businesses looking for growth inside China and that looking abroad for funds may push up rates in other countries.
Waiting for the crash to come is not an option. Investors with cash tied up in emerging markets would do well to reconsider their options and look for a safer haven for their money before Yellen announces the Fed taper and throws the markets into panic.