LONDON (Reuters] – While central banks in the developing world will raise interest rates, this will support emerging market debt, and act as a buffer from tightening policies by the U.S. Federal Reserve. But it could also spell trouble for equities.

Wei Li, chief investment strategist and global chief of BlackRock Investment Institute (the world’s biggest asset manager), stated that central banks in emerging countries have raised interest rates to control inflation and stop their currencies depreciating rapidly.

The rates of interest have risen in the last few months by central banks across developing countries, including Brazil and South Korea.

The weighted average policy rate across all emerging markets included in JPMorgan’s GBIEM global diversified index is 3.2%. It will rise to under 5% within a year. BlackRock calculated this to be close to zero or negative rates for the United States and Euro area. It also indicated that “much of work” is being done in emerging market markets.

BlackRock noted that emerging central bank’s proactive approach was also helping to push growth through the delayed rollout of vaccines.

While this makes us be cautious with EM equities in a global market that’s starved for yield, it does make some EM debt attractive.

BlackRock asserted that the local-currency bond offered the greatest opportunities for fixed income in emerging markets due to its short duration and low sensitivity to increasing rates.

It stated that it gives access to “smaller shares of EM equity indicels such as LatAm.”

Wei Li stated that local currency bonds from higher yielding countries are preferred, with strong current balances.