Emerging Markets Struggle

  July 13, 2018

Rising rates and a stronger U.S. dollar are weighing on emerging markets, which benefited from years of record low U.S. interest rates. Elevated rates in the U.S. make emerging market assets less attractive than U.S. assets and influence investment overseas to migrate back to the U.S. marketplace.

Currencies from emerging countries including Brazil, South Africa, South Korea, Argentina, and China have all seen pullbacks relative to the U.S. dollar. Many believe that a weaker Chinese currency is a strategy to retaliate against the newly imposed U.S. tariffs. Any continuation of a weakening Chinese currency could amplify risks and volatility for emerging markets.

Trade tensions have also negatively affected China’s stock market, with the Shanghai Composite index down over 13% year to date. Worrisome for China is the fact that the Chinese currency and stock market have both headed negative for the year, a gauge for other Asian currencies and equity markets.

Sources: U.S. Treasury, Bloomberg, IMF

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