Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Market Fears Rising U.S. Interest Rates

LONDON -- International funds are worried that more interest-rate rises in 1995 will prompt a rush of redemptions from powerful U.S. mutual funds, sending both established and emerging markets heading down again.

"The extent to which U.S. short rates will have to rise to slow the domestic economy is the largest single question currently facing international financial markets," said John Reynolds, global strategist at NatWest Markets.

Higher interest rates would increase the attraction of putting money on deposit rather than investing it in the funds.

U.S. mutual funds starting increasing their percentage of foreign assets in 1992 and built up sharply in 1993, boosting emerging markets especially.

But with the first U.S. rate rise on Feb. 4 this year, that "wall of money" started crumbling.

U.S. rate rises were widely expected this year but the unrelenting pace took many funds by surprise.

S.G. Warburg strategist Andrew Garthwaite calculates that every one percentage point on U.S. short term rates could cause a $2.2 billion fall off in equity mutual fund inflows.