Emerging Markets are Afraid of Fed QE2

Emerging Markets are afraid of Fed QE2

Finally the Federal Government has declared US $ 1 Trillion of QE2. (Well, Yes. It’s not just the US $ 600 Billion but it’s literally almost US $ 1 Trillion. Read Here)

Thus, literally $ 1 Trillion will be created more out of thin air in this world. And now the Emerging economies are worried. This is because this newly printed dollars will enter into the emerging markets and artificially balloon/inflate their equity and other asset markets.

Many emerging country leaders have shown fears.

According to the Economic Times,

HONG KONG MONETARY AUTHORITY CHAIRMAN NORMAN CHAN
"The launch of QE2 will definitely add pressure to the asset markets in the emerging markets, including Hong Kong.
"As far as Hong Kong is concerned, we would take measures that are specific to the housing markets and as you are aware, the government has introduced a package of measures in mid-August including land supply, sales practice and measures to dampen speculative activities in the markets. And as far as HKMA is concerned, we have introduced measures which tightened underwriting standards.
"We will continue to monitor the market condition and we'll introduce measures as appropriate."
PHILIPPINE CENTRAL BANK GOVERNOR AMANDO TETANGCO
"With yields in the U.S. expected to remain low for longer, the shift of funds to EMEs, including Philippines, may continue," Tetangco said in a mobile text message to reporters.
"The BSP will therefore remain vigilant in monitoring developments and gauging how effectively this Fed move will perk real U.S. growth, and therewith global inflation outlook."
MEXICO FINANCE MINISTER ERNESTO CORDERO
Authorities in Mexico and abroad need to monitor "the risk that this could generate more bubbles in asset markets."
"We will be very watchful in case we start to see a lot of this money getting channeled into the Mexican economy."
BRAZIL CENTRAL BANK PRESIDENT HENRIQUE MEIRELLES, IN
COMMENTS TO GLOBONEWS
"The result is a big expansion of liquidity, which is not being totally absorbed by the United States. This flows out onto other countries, including Brazil, which is growing. The consequence is an excessive liquidity of dollars which we are absorbing ... There was the decision of (raising Brazil's) IOF tax (on foreign purchases of bonds), and prudential measures aimed at preventing this from creating credit bubbles in the economy."
BRAZIL'S FOREIGN TRADE SECRETARY WELBER BARRAL
"(The Fed's decision) is cause for concern. They are policies that impoverish those around them and end up prompting retaliatory measures. And then you have this type of cancer which is protectionism, that spreads very fast."

Indian stock market will also balloon because of this newly printed money entering into the Indian capital markets and artificially raise all the asset prices.

QE2 will ultimately affect the economies of the entire world. What smart investors should do now? Well, they should stop saving their money in various fixed income instruments like Bank FDs, PPF, Post-office savings schemes and even EPFO. This is because Fixed income instruments are worthless now. When Governments and Central banks from all around the world are printing billions and trillions of money out of thin air like hell, it is advisable to invest your money in assets like stocks and gold rather than in fixed income instruments.

Now, the rules of money have been changed. Now, FDs, PPF and Post office savings schemes are no more safe. The safest investment is now Equity…!!!