You know there’s an underlying problem when investment firms start to cut exposure to a particular asset class. Goldman Sachs’ decision last week to slash exposure to emerging markets is an indication of the current situation for these economies. The bank’s asset management arm said that it had scaled back its “overweight” exposure to emerging market currencies and debt amid rising trade tensions between the US and China. Emerging markets are bearing the brunt of an escalating trade war between the world’s two largest economies, and there is no way to be certain when this will end. Last week was the worst for emerging market currencies since the Turkish lira crisis last summer. The Chinese yuan has lost nearly three per cent of its value against the US dollar since 5 May – the day that President Donald Trump tweeted about new tariffs on the country. This rout seems to be spreading to other countries, with MSCI’s index of emerging market … [Read more...] about Are emerging markets ready to fight back?
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How significant is Jay Powell’s U-turn for emerging markets?Pretty significant. The US Federal Reserve chair’s change of direction last Wednesday, when he indicated the Fed would hold off more rate rises, gave an extra lift to what was already shaping up to be the best month for emerging market bonds since 2016.Over the past year, the combined forces of US interest rates, the dollar, and dollar liquidity have driven EMs. They had a torrid time for the first three quarters of last year.While the Fed continued dialling up interest rates, the dollar strengthened and the central bank began to offload some of the assets it bought following the financial crisis, in a process known as “quantitative tightening” (QT). That began to change in the fourth quarter.Although QT was widely seen as on autopilot at $50bn a month, the Fed “introduced some flexibility” to the outlook on interest rates, said Paul Greer, portfolio manager for EM debt … [Read more...] about Market questions: Will the Fed’s U-turn boost emerging markets?
LONDON (Reuters) - Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them. FILE PHOTO: A man is reflected on an electronic board showing a graph analyzing recent change of Nikkei stock index outside a brokerage in Tokyo, Japan, January 7, 2019. REUTERS/Kim Kyung-Hoon AND SO BEGINS THE PAUSE The U.S. Federal Reserve convenes its first monetary policy meeting of 2019 after hiking rates for a fifth time in as many quarters in December. But while it has forecast two more hikes for 2019, the darkening global economic outlook, convulsing stock markets and a record-long government shutdown are clouding the policy picture. Now, Fed Chairman Jerome Powell is preaching “patience” with regard to future rate increases, and he’s been joined by two other governors and all 12 Fed regional bank presidents. But what happens after such a pause? Interest rate futures markets currently … [Read more...] about Take Five: Time for a break? World markets themes for the week ahead
SPARE A THOUGHT for emerging markets. When America’s economy falters, they often share the pain, because America is an indispensable market for their goods. But when America’s economy prospers, they can also suffer, because the Federal Reserve will raise interest rates, lessening demand for emerging-market assets. Get our daily newsletter Upgrade your inbox and get our Daily Dispatch and Editor's Picks. This catch-22 was vividly illustrated in 2018. America’s economy expanded robustly. But this boost to global demand was overshadowed by the Fed’s response to it: four rate increases that wreaked havoc on overvalued currencies and overstretched economies in the emerging world. An index of emerging-market equities compiled by MSCI fell by almost 17% over the year. Emerging markets were therefore relieved by reassurances offered by Jerome Powell, the Fed’s chairman, on January 4th. He emphasised that American inflation remained “muted”, that … [Read more...] about For emerging markets, a more fearful Fed is a less frightful one
Put half a dozen investment experts in a room and you will usually get six different opinions on stock markets. But as we head for 2019, there is a little more consensus than usual. Nearly everyone is saying that the year ahead is going to be a difficult one for investors - although it will not be without its opportunities. Nick Dixon is investment director at financial services company Aegon. He believes that next year will be 'challenging' for investors, with uncertainty 'driven by slowing global growth, Brexit and the uncertain pace of interest rate rises'. One in three fund managers think the UK and the US could offer the best investment returns It is a view shared by Darius McDermott, managing director of investment fund scrutineer Fund-Calibre. He says: 'I think 2019 could be another difficult year for investors. It may be a volatile 12 months and investors could be well-served taking a look at their portfolios and rebalancing any biases that exist.' In other words, … [Read more...] about How UK may see a surprise stock market boost in 2019