This time, it seems that things are indeed different. The recent market panic about the Federal Open Market Committee possibly being on course for an interest rate hike in June did not hit emerging markets as hard as perhaps it would have done just half a year ago.
Does this mean that emerging markets are more robust? Whisper it, but the answer could be "yes."
The developing countries that are usually the most vulnerable to external shocks "were surprisingly resilient in the aftermath of the publication of the minutes from April's FOMC meeting," David Rees, an emerging markets analyst at London-based think tank Capital Economics, said.
On Thursday morning, the Brazilian real and the South African rand both appreciated against the U.S. dollar, while equities markets in developing nations were only slightly lower. One reason for the markets being so calm could be, of course, that the fed funds futures market still shows around a 70% probability that interest rates will remain unchanged next month.
But another reason is that "investors appear to have already adjusted to the likelihood of tighter U.S. monetary policy," Rees said. Emerging equity markets had already weakened in view of that expectation, while the dollar strengthened.
Besides, the scale of the tightening expected from the Federal Reserve is "not particularly large in the grand scheme of things," he added. Interest rates are still more than accommodative, and there are relatively few emerging markets that are heavily reliant on dollar-denominated borrowing.
Another factor that could cushion emerging markets from a Fed rate hike is the European Central Bank's monetary policy. As the ECB will begin to buy corporate bonds next month, developing countries' corporations could benefit.
Companies in emerging Europe, the Middle East and Africa could ride the wave of increased demand for corporate debt that's denominated in euros and issue fresh bonds, said Kay Hope, a research analyst with Bank of America Merrill Lynch's global emerging-markets team.
Hope said yields from emerging markets' euro issuers "may be higher than for developed-market names" -- which is good for investors -- "but they will still be low by emerging-market standards."
If anything, corporate defaults seem to be piling up in the developed world's dollar-denominated debt. Standard & Poor's this morning reported that more than 70 corporate borrowers have defaulted globally so far this year, including more than 50 in the United States. Predictably, more than half of the defaulters are in the energy and natural-resources sector.
According to Hope, emerging-market corporations that are investment grade or immediately below it (in the BB area) and that have business ties with Europe will likely benefit the most from issuing euro-denominated debt.
Russian companies, for instance, could be among the issuers. Middle Eastern firms could be advantaged as well, and there's no reason why some big Latin American corporations will not opt to issue debt in euros in the future to take advantage of lower yields.
Purchases by the ECB will reduce supply of corporate bonds in the market and make investors less sensitive to issues such as low commodity prices and iffy company fundamentals. "European investors may have to learn to like emerging markets to reach their yield targets in 2016," Hope said.
Perhaps the same is true for U.S. investors as well.
For more about how to navigate the Fed's interest-rate dilemma, read these stories from Real Money:
