US QE policy change risks

Greater macroeconomic and fiscal stability mean China is in a better position than other emerging economies to withstand effects

The United States Federal Open Market Committee announced Wednesday that it will start drawing down its multibillion-dollar quantitative easing policies in 2014, tapering its monthly purchase of Treasurys and Treasury mortgage-backed securities by $10 billion in January. Since the real economy in the US is steadily recovering now, it was only a matter of time before the Fed decided to taper it off. But, this announcement took many analysts by surprise. In fact, it had only a mild effect on the financial markets with no large-scale financial turbulence taking place. This was not what Fed Chairman Ben Bernanke implied would be the case back in May when he first floated the taper, so it will further strengthen the Fed's confidence that it can finally bow out of its quantitative easing policy.

However, while the shocks towards developed countries can be isolated. Those investors who have experienced turmoil in emerging markets this year will still worry about the impact of the Fed's policy change, and the mild market response this time just shows that the impact will slowly emerge like the proverbial "slow-boiling frog".