Asian markets ready for taper

The US Federal Reserve has begun tapering its quantitative easing policy. The Fed started "tapering" or paring its bond buying in December and cut its monthly bond purchases further in January to $65 billion.

Thus far, emerging economies in Asia have taken the QE tapering in their stride. Financial markets in Asia reacted much more negatively to the fears of tapering in mid-2013 compared to the actual start of tapering. The impact of the summer "taper tantrum" was particularly acute for India and Indonesia, leading to a fall in asset prices and dampening the growth outlook in those two economies. Nevertheless, neither country - nor any other emerging economy in Asia - had a systemic crisis.

This is due not least to the fact that the fundamentals of Asia's emerging economies are now much healthier that they were in the 1990s. Debt denominated in local currencies is more common today, thus foreign exchange depreciation causes less harm to domestic balance sheets. Most economies have large foreign exchange reserves and overall comfortable foreign exchange liquidity to serve their external financing needs. External debts are better structured and less vulnerable to external shocks. And bilateral as well as multilateral agreements for currency swap facilities are in place, mitigating risks.