In last week’s Marketexpress we wrote about the surprisingly resilient EM currencies. Despite the seemingly hawkish comments of Fed Chairwoman Yellen and the increasing worries about Chinese growth and its financial system, EM currencies as a whole have appreciated since the second half of March. 

## EM bonds and currencies perform well since end of January

![](https://api.ingim.com/DocumentsApi/v1/images/RWS_A_080430/display)

## Policy response China after accumulation of bad news

We mentioned that one likely explanation for the EM resilience was that the reports from China had become so bad that markets interpreted them as good news: every disappointing figure was one step closer to a policy response. And indeed, last week the Chinese authorities announced a number of stimulus measures which are quite similar to the ‘mini stimulus’ package that was announced last year. The measures include accelerated spending on rail projects and public housing and extended tax relief for small businesses. Although the magnitude and effectiveness of the stimulus should not be overestimated, it should help to underpin the sentiment towards China and emerging markets.

## A lot of negative news about EM is priced in

Next to that, after more than a year of strong capital outflows, markets have priced in a lot of negative news. The increasing evidence of financial system stress in China and the aggressive intervention of Russia in Ukraine have been important negative news items in the past months, but failed to push EM currencies significantly lower. This suggests that the downside risk for EM assets is lower than it has been for a while.