The recent minutes of the US federal open market committee have led to speculation that another round of quantitative easing (QE) may be announced or hinted at during the annual jamboree of central bankers at Jackson Hole at the end of this week. Even if that doesn’t happen, it’s probable that monetary easing may continue by the US Federal Reserve and the European Central Bank. The question is: What impact will it have on emerging markets?

A note by Citi Research says the prospect of QE3 should be a support for emerging equities over the rest of 2012. The chart shows the markets that gained the most from previous episodes of QE. The research note says: “Just four markets (three of them being BRICs) show consistent high-beta characteristics (outperforming, on average, during QE and underperforming in non-QE periods): Hungary, Brazil, Russia and India. Several other markets did well in the previous QE periods, but also outperformed when QE ended: Indonesia, Thailand, Turkey, Korea, Chile and South Africa. These 10 markets were the outperformers in the previous periods of QE."

The chart does show, however, that the impact of QE2 was much lower than that for the first round. For the Indian market, the difference was stark. Whether QE3 will benefit India to any great extent is therefore unclear. Incidentally, the Citi note also shows India to be their largest underweight among emerging markets.