Emerging Markets Taking Hit From U.S. Interest Rates

With emerging markets affected by growth in the U.S., fears that rising interest rates here will slow growth are pulling down markets among a number of developing countries, MarketWatch reports. Some experts believe rates could climb to 6.5% by the end of the year from their current 5%.

In the four weeks ended May 26, emerging markets mutual funds are down 8.4%. Likewise, funds focused on Latin America are down 8.3% in the period.

"Rising U.S. interest rates are not good for the U.S. equity market because it suggests the economy will slow, and they're not really good for emerging market equities because in a lot of respects, emerging market equities are nothing more than a levered play on U.S. investing and the economy," said Jeff Tyler, a portfolio manager of a number of funds at American Century Investments.

"What the markets are really concerned about is a central bank policy error," said Larry Smith, chief investment officer at Third Wave Global Investors. "There is a lack of confidence in the leaders of the central banks around the world in terms of how the markets are reacting."