Fed rate hike victims: Not who you think

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China, Hong Kong, and Malaysia should be on investors' worry list amid expectations for a U.S. rate hike in 2015, HSBC warned.

Current account surpluses in all three countries shrank rapidly between 2008 and 2013 compared with Asian peers, Frederic Neumann, HSBC's senior economist, said in a report on Friday.

"A shrinking surplus can signal emerging vulnerabilities, just as a narrowing deficit may leave a country more resilient. In short: don't just look at the current account balance, but at its direction, too," he said.

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Emerging markets suffered a bout of volatility in 2013 when the Federal Reserve first broached the idea of tapering its stimulus program. India and Indonesia were particularly hit hard, with their stock markets and currencies sprawling, because of their wide current account deficits.

Another indicator of weakness

Whether changes in a country's current account balance are due to a shift in savings or investments is a tell-tale sign of economic vulnerability, HSBC's Neumann said.

"If a country's saving rate falls, especially relative to investment, this can often signal rising inefficiency possibly reflecting capital misallocation, and therefore heightened financial vulnerability despite excess saving," he said.

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Again, China, Hong Kong, and Malaysia show up on the more worrying side, with declines in their national saving rate between 2008 and 2013, despite running overall surpluses.

Recent data focus

Not all agree, however. As long as a country's surplus is intact when the rate hikes occur, its markets will be fine, Tim Condon, head of research at ING Financial Markets, said, noting investors gauge susceptibility to jittery markets by recent data, not long-term trends.

China's surplus widened this year, which should protect its markets from a Fed rate hike, he said. Beijing's third-quarter current surplus balance rose to $81.5 billion, compared with a revised surplus of $73.4 billion in the previous quarter and $7.2 billion in the first three months of the year.

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Regarding Hong Kong, Condon said market players don't really see the city as balance of payments crisis candidate.

2013 victims

India and Indonesia, two of the biggest victims of 2013's emerging markets taper tantrum, paint contrasting pictures for the year ahead.

Why a US rate hike in 2015 is unlikely
Why a US rate hike in 2015 is unlikely   

India's external balance improved during the 2008-2013 period, while savings have increased relative to investment, suggesting the country is less vulnerable to a U.S. rate hike than before, HSBC noted.

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On the other hand, Indonesia's current account balance deteriorated in recent years and it joins China, Hong Kong, and Malaysia in the camp of investments outstripping savings. Still, HSBC believes the country in a unique position since it sorely lacks capital spending.

"Indonesia still remains vulnerable to taper tantrums. Their current account deficit is narrowing so they're much better prepared than 2013 but it would be optimistic to think that contagion next year will spare Indonesia," ING's Condon said.