Eq: EMs


There is a big mess going on in Turkey. The country’s spat with the US is playing out in financial markets, and it is really starting to hurt. The Lira is dropping fast, and the country’s benchmark bond yield just hit a whopping 20%. The huge losses in the currency and bond market might also lead to a rout and/or chaos in the country’s banks, which are now only weakly capitalized.

FINSUM: It is important not to muddle Turkey with other emerging markets, as many of its problems are specific to itself. Still, there are similarities and a renewed widespread selloff does not seem out of the question.


Emerging markets had a rough first half to the year. Between rising western rates and a trade war, there was not a lot to be happy about in EM assets. Then, a few weeks ago, many sources were saying the bear market was over and it was time for a rally. However, investors need to stay sharp, as EM currencies are still sliding, which will lead to lower growth. Weaker currencies also make it hard to pay back Dollar-denominated debt, which could hurt credit. There are also country-specific issues, like the growing trade battle between Turkey and the US.

FINSUM: There are still a lot of macroeconomic developments moving against EMs, but to be fair, the best rallies start in the darkest hours.


Emerging markets have had a rough year, with many major indexes, including in China and Brazil being in or near bear markets. This has led to a great deal of anxiety over the direction of assets, both stocks and bonds, in EM nations. Well, July may be the start of a new phase, at least according to Goldman Sachs. The bank says the emerging markets have hit their bottom and are now poised for a rally. Goldman reminds investors that big asset price moves in EMs are not uncommon, and that this year’s losses are quite ordinary.

FINSUM: The big question here is whether EM equities or credit are a better bet at the moment. Looking historically, credit seems to have a better risk/reward proposition when getting in early in a rally.

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