Emerging markets have therefore been facing a double negative in terms of capital flows: capital which had previously been chasing relatively higher yields and higher growth in emerging markets is now reversing, with the prospect of interest-rate increases in the US.
In addition, the lower growth associated with the slowdown in China and declining terms of trade have also contributed to a reversal of capital flows towards the advanced economies. But at the same time, concern about the slowing global economy and its possible spillbacks to advanced economies has also weighed on the Fed’s decision making.