By Dimitra DeFotis

Blame fear of the U.S. Federal Reserves plans to raise interest rates, says Societe Generale: Broad measures of emerging markets have turned in a lackluster performance, especially of late.

The iShares MSCI Emerging Markets ETF (EEM ) is up 2.9% year to date, but is down 0.7% this week. The Vanguard FTSE Emerging Markets ETF  (VWO ), while up 3.4% this year, is down nearly a point this week. Highlighting disappointment: the iShares MSCI  Turkey  ETF  (TUR ), is down 9% this year and off by 0.3% this week, while the iShares MSCI  Brazil  Capped ETF  (EWZ ), is down 6% this year and 3% this week.

SocGens Benoit Anne writes:

Global emerging market assets are having a tough time these days, for the most part. And if I try to rationalise the recent move, the only explanation I can come up with is that the fear of the Fed is back. This may seem somewhat paradoxical after the fairly dovish Fed Chairs statement at the Senate last week, but I guess global investors have decided that now is a good entry point to position for a potential Fed shift to a more hawkish bias. In other words, there is some fear about what the Fed might tell us at its next policy meeting, to be held on 18 March. In the process, the DXY [spot U.S. dollar index] has now climbed all the way to 95, while the 10y U.S. Treasury yields have picked up almost by 10 basis points since the beginning of the week. Those two market moves alone would be enough to explain the stress we have observed in most EM currencies, with EMEA FX [Europe/Middle East/Africa foreign exchange] once again on the front line. EMEA tends to be the most vulnerable region to swings in investor sentiment, so this should not be surprise. Latin America is also under pressure, while Asia seems to display its usual resilience. So where does this leave us in Global emerging markets (GEM)? Against this backdrop, I feel much less appetite for trying to fade the strong dollar and want to switch to Fed wait-and-see mode with a tactically bearish bias. The TRY [Turkish lira] is our least favourite currency at this juncture, being short the lira both through a long USD spot and an option. But signs of stress can be seen elsewhere. After weeks of relative resilience, the rand seems to have changed gear for the worse. In Latin America, where we got stopped out of our short USD/BRL [Brazilian Real] position, I had to admit defeat, and it is not a matter of days before the BRL bumps against the big 3 figure.