LONDON A well-orchestrated statement from G20 finance chiefs this week could go some way towards defusing the volatility of global markets surrounding the end of U.S. money printing, but probably not the markets' direction.
Strategists and investors have grown inured against over-inflated expectations of G20 meetings ever since it conducted a dramatic global economic rescue in early 2009.
But they say some show of solidarity among G20 finance chiefs in Moscow this week about the scale of recent market turbulence emanating from the U.S. Federal Reserve suggestions on a bond-buying exit would be eyed favorably by jumpy markets.
This may particularly be the case after Fed chief Ben Bernanke told the U.S. Congress on Wednesday pretty firmly that they should expect a pulling back from stimulus to begin later this year but again hung it all on the progress of the U.S. economy and hinted that there were global risks.
The G20 meeting in Moscow on Friday and Saturday will thus be especially crucial for developing countries who have been at the sharp end of the volatility in global markets ever since May 22, the day the Fed first signaled it could start unwinding its $85 billion-a-month stimulus.
As the dollar has surged, rising 4.5 percent off its 2013 troughs on the Fed's trade-weighted index, tens of billions of dollars have fled emerging stock and bond markets. Bond yields have spiked and currencies from the rupee to the lira have slumped to multi-year or even record lows.
But it is not just emerging markets that are affected - rising U.S. yields boost borrowing costs for everyone. The dollar moves have led to wild swings on world currency markets. The implied volatility on dollar-euro and dollar-yen exchange rates is up a third to a half from early-2013 levels.
"What markets and investors would appreciate is to have an understanding that there is more G20 cooperation and coherence in the crisis exit strategy," said Simon Quijano-Evans, head of emerging markets research at Commerzbank.
Quijano-Evans acknowledges that an adjustment in global asset prices is inevitable as the Fed starts rewinding some of the liquidity that has inflated world markets over the years.
But given the disproportionate impact on the developing world both from money printing and its withdrawal, it may only be fair to take their views into account he says.
"It would be good to see emerging markets as participants in the policy adjustment process and any comments the Fed makes on this will have a corresponding effect," Quijano-Evans added.
The Fed's policy shift and the demand for dollar assets have changed the picture since the last G20 meeting in April. Back then, with Bernanke's speech on so-called tapering still in the future, the summit's official communique only mentioned the perils of unlimited monetary easing.
"We will be mindful of unintended negative side effects stemming from extended periods of monetary easing," it said.
What could help soothe markets now would be a sentence on the exit from U.S. money-printing, its pace and method, and an indication of how well flagged the Fed plans may be.
That reassurance is clearly being sought by the developing nations at the table, with host Russia calling for "predictable" G20 policies especially on reserve currencies.
ONLY BRIEF RELIEF
Sympathy may however be in short supply for emerging officials who only a couple of years ago were fulminating against the Fed for waging currency wars against them - essentially accusing it of weakening the dollar deliberately.
"I'm not sure emerging markets have a leg to stand on," said Standard Bank analyst Tim Ash. "They have all taken advantage of very cheap financing ... Many have just sat back and not reformed, and this has left them vulnerable as the flows begin to exit."
That lack of reform leading to an across-the-board growth slowdown is why any G20-fuelled relief is unlikely to last.
Analysts will point out that emerging currencies and stocks have performed poorly since mid-2011 even though money-printing was in full swing.
The growth differential between emerging markets and the United States is the lowest since 1999 in GDP-weighted terms, UBS strategist Manik Narain says, while the developing world's once mighty current account surpluses have shrunk.
Markets are voting with their feet. A Bank of America Merrill Lynch poll this week showed investor exposure to emerging markets now at its lowest in nearly 12 years.
(Editing by Jeremy Gaunt)