Eq: EMs

(New York)

There is a lot of turmoil going on in emerging markets right now. So much so that many are now considering it a full crisis. So far, though, the problems have yet to materially impact US markets. However, Barron’s explains that there is a mechanism through which EMs could cause trouble for the US and the rest of western markets. Because the trade war with China continues to escalate, the country’s yuan may devalue significantly, hurting all EMs. If this happens, the ripple effects through the global economy might be very strong. India and Mexico seem to be the safest EM destinations at present.


FINSUM: China is big enough to bring down the whole world economy, so the real threat here is the trade war first, and then how EMs compound that problem.

(New York)

The big rout in emerging markets is starting to look like a full blown crisis. So far the US has proven itself immune to the turmoil, but the contagion is spreading, according to both JP Morgan and BlackRock. The pair say that a herd mentality has taken hold and that investors are indiscriminately selling emerging market assets, so matter what the value or long-term outlook. Even those with holdings that look strong are selling for fear of getting trampled by the rest of the herd, thus feeding the cycle further.


FINSUM: The big selloffs now include not only Argentina and Turkey, but South Africa, Brazil, and Indonesia. Given the Fed’s hawkishness and trade wars roaring, there is no end in sight for the turmoil.

(Buenos Aires)

A couple of weeks ago investors seemed ready to accept that the brief emerging markets selloff was just a minor Turkey-induced tantrum, but would not blossom into something worse. Well, that view seems to be waning, as the selloff in EMs has spread and is starting to have all the hallmarks of a full crisis. One analyst summarized the situation this way, explaining that this has all the hallmarks of an EM crisis: “a large dose of debt and an associated domestic credit bubble, including misallocation of capital into uneconomic trophy projects or financial speculation. Then add: a weak banking sector, budget deficits, current-account gaps, substantial short-term foreign-currency debt and inadequate forex reserves”.


FINSUM:EMs are facing a lot of headwinds, but the economies in most of them seem healthy, so hopefully the problems will be contained to just the most troubled (e.g. Turkey and Argentina).

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