China holds fate of Emerging Market currencies

Emerging market investors are looking to China as the US Federal Reserve becomes more hawkish with interest rates.

Despite recent global economic uncertainty, China has managed to handle the depreciation of the yuan to prevent an even larger flight of risky currencies.

The announcement by the Federal Reserve was immediately met by declining emerging market currencies all over the word, from South Korea's won to India's rupee. The yuan depreciated as well, but not as low as analysts expected.

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“If they were to allow the yuan to weaken at a faster pace than we have come to expect, that would definitely put pressure on other Asian currencies. To make another major change to the way the currency is managed now would confuse markets and lead to further volatility. It would be very disruptive," said Khoon Goh, head of regional research at Australia & New Zealand Banking Group Ltd.

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The MSCI Emerging Markets Currency Index declined the most since 2012 in August of 2015 when the People's Bank of China let the yuan depreciate to its lowest in two decades.

Many investors think, however, China may no longer play the role of currency-market stabilizer.

Read more at Bloomberg.