Emerging markets face turbulence

published 22 June 2018

901-Philippines-634 — The Philippines still shows promise

The latest fuss over protectionism is especially worrying for emerging markets. Developing countries are a geared play on global growth, as exports usually account for a larger share of GDP than in the developed world. So when Trump threatened more tariffs this week, an index tracking major emerging-market currencies slipped to its lowest level since he won the White House.

Early this week the Turkish lira lost another 1% against the greenback. The Australian dollar is "not an emerging-market currency, unless you enjoy winding up Australians", says Kate Martin in the Financial Times. But it is deemed a barometer of Chinese and global growth. It fell by 0.7%. It hardly helps matters, says Capital Economics, that emerging market export growth has cooled anyway recently. After surging to a six-year high in 2017, the US dollar value of emerging market exports grew by just 11.4% in March, the weakest pace for 16 months. If there is a trade war, growth will be weaker in the next few years.

On the plus side, however, emerging markets have got their act together. Since the Asian crisis of the late 1990s, emerging market crises "have tended to be isolated rather than systemic events". Crucially, most developing countries have reduced their vulnerability to external shocks: the countries most dependent on external financing, Argentina and Turkey, are already in the markets' sights. Most others have kept a lid on foreign currency debt, and got better at targeting inflation and reducing public borrowing. Risky assets all tend to fall at once when there is a panic, but this implies a chance to buy cheaply assets from countries with big domestic markets and promising prospects. India, Brazil and the Philippines are among our favourites.

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Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.