Fed and EM vulnerability

Whether liftoff is in September or December, the onset of the Fed's hiking cycle is approaching. This has brought EM vulnerabilities into sharper focus. 

Countries' resilience to external risks has changed since the 2013 taper tantrum. BofA Merrill Lynch finds Brazil, Chile, and Colombia have become more vulnerable, while India, Hungary, and Poland have become less so.

BofA Merrill Lynch says vulnerability indices for the other members of the Fragile Five, Turkey, Indonesia and South Africa, have remained stable. However, Turkey and South Africa remain among the most vulnerable, while Indonesia appears more resilient to external risks. 

"We see some signs of stabilization and maintain our 2015 EM GDP growth forecast at 4.2%, but revise Brazil lower. We see value in front-end receivers in Colombia, Mexico, Korea and Hungary. In FX, we like HUF and are short CNY, KRW and BRL." says BofA Merrill Lynch