How will US monetary tightening impact African markets?

US Federal Reserve Board building

The US Federal Reserve is set to tighten its monetary policy for the first time after the 2008 global financial crisis. Anna Lyudvig analyzes the possible implications for African markets

The years following the financial crisis, characterized by the wall of liquidity, saw a massive flow of capital into emerging markets and African frontier markets in particular. While the US Federal Reserve has held its benchmark interest rate close to zero for more than six years, the times of the zero-interest policy rate are clearly over.

In anticipation for the end of quantitative easing and the Fed rate hike, last year saw a massive outflow of capital from Africa and other emerging markets, says Khalil Modarrisi, Senior Investment Officer and Head of Fixed Income at Fleming Asset Management: “We should expect more capital outflows, but not to the extent observed in 2014, as most of the EM investors have already reduced allocation to Africa.”

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