Emerging sovereign debt fell on Friday in volatile trade, following the lead of weaker US stocks as a fiscal stimulus package unveiled by the Bush administration failed to fire up investor enthusiasm. Emerging market economies rely on the demand from the United States for their high-priced commodities as well as other value added goods.
A slowdown in America historically has led to slowdowns in emerging markets. In recent months however, there has been a tug-o-war between investors betting emerging markets, boasting better government balance sheets and tighter fiscal policies, are strong enough to counter a US slowdown and those who still see them inextricably tied together.
"I think the safest thing to say is that volatility is going to continue in the very near term," said Nuno Camara, senior Latin American economist at Dresdner Kleinwort in New York. "The key point is, no matter how much volatility we are likely to see in the near term, we continue to believe that there is not going to be an impact on the sovereigns on the macro-economic fundamentals. So regardless of what happens we are going to see some solid sovereigns going forward.
The benchmark J.P. Morgan Emerging Markets Bond Index Plus total returns on the day fell 0.38 percent while the yield spread over benchmark US Treasuries, a key gauge of investor sentiment, was unchanged at 272 basis points. America's Standard & Poor's 500 stock index fell 0.60 percent on the day, ending its worst week in 5-1/2 years.
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