The wealthy economies of Singapore and Hong Kong are perhaps not the first that analysts associate with instability, but according to international research house Capital Economics, they're the ones most likely to be burned by U.S. Federal Reserve rate hikes.
Most analysts expect the Fed will raise interest rates in mid-2015 once it has finished winding down its tapering program. With their domestic interest rates tied to the Fed, Daniel Martin, emerging markets economist at Capital Economics, said Singapore and Hong Kong are particularly vulnerable to such moves.
"These countries are the only two countries that we cover that have the dual problems of rapid recent credit growth and a lack of exchange rate flexibility," Martin told CNBC.
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Singapore's exchange rate is fixed to trade within a specified band, while the Hong Kong dollar is pegged to the greenback.
According to Martin, because Singapore and Hong Kong's exchange rates lack flexibility, their interest rates – which currently sit at 0.21 percent and 0.41 percent respectively – are at risk of spiking sharply in the event of a Fed funds rate hike, which could cause problems for overextended borrowers.
"Borrowers in these countries have been used to very low interest rates for years, and the rise in interest rates over the next few years could catch them by surprise," added Martin.
Other economists agreed. Seng Wun Soon, regional economist at CIMB bank, said many Singapore households would be particularly vulnerable to Fed rate hikes, considering that 70 percent of housing loans are on floating rate plans.
However, he added that the broad strength of the Singaporean economy, including its healthy banking sector should help it withstand the transition.
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Property boom
With the cost of borrowing so cheap, both Singapore and Hong Kong's property markets have seen unprecedented booms in recent years, leading many market watchers to speculate over potential bubbles. Singapore's home prices climbed 60 percent between 2009 and mid-March, while Hong Kong's property prices have more than doubled.
Martin told CNBC the household sectors in these countries look vulnerable, especially as household debt is equivalent to almost 80 percent of gross domestic product (GDP) in Singapore, and 60 percent in Hong Kong.
"Of the two, it could be Hong Kong that has the greater trouble in the household sector, because its housing market looks very frothy. I think house prices are likely to fall in both economies as interest rates rise, but in Hong Kong the correction is likely to be quite large," he added.
But the corporate sector is even more at risk, Capital Economics warned, because corporates there have ramped up borrowing at an even faster pace.
According to data from the International Monetary Fund, Singapore's corporate-credit-to-GDP ratio was around 90 percent in 2013, compared with an average of 45 percent between 2004 and 2007. Hong Kong's ratio stood at 120 percent last year, compared with an average of 80 percent between 2003 and 2007.
However, Martin did acknowledge that both economies have a lot of positives in their favor including healthy banking sectors, reasonably high lending standards and well-capitalized governments. Furthermore, they both stand to benefit a lot from the global trade recovery.
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"To me the risk is more that they will have to cope with a few years of lower growth, rather than full-blown crises, but there are definitely vulnerabilities there," he added.
Michael Wan, economist at Credit Suisse bank, agreed that Singapore and Hong Kong were vulnerable to a Fed funds rate hike, but said he wouldn't classify them as the most vulnerable in Asia.
He pointed out that they both have current account surpluses, and well capitalized banking systems that should be able to withstand shocks.
"Both have also taken pre-emptive action to curb the rise in household debt by implementing a plethora of macroprudential measures," he added.
Wan told CNBC he saw countries like India and Indonesia as continuing to be especially exposed to Fed tightening.
"Given their external vulnerability coupled with their structural fiscal deficits, albeit having improved from last year in their macroeconomic imbalances," he added.