2018 has been challenging for investors in Global Emerging Markets (GEM), with rising volatility in Forex, debt and equity prices causing negative returns. As the year has progressed, several themes have increasingly influenced sentiment and momentum.
The US continues to tighten its monetary policy: the risk of fiscal laxity could further this trend. Tighter US monetary policy affects GEM policies, especially in economies where domestic currency weakness leads to rising inflation. Although the importance of the US dollar (USD) to GEM countries has been reduced since the Chinese renminbi now represents around 30% of the world’s broader monetary base and China has an increasing role in GEM investments and trade, movements in the USD still influence GEM with regards liquidity conditions. The ongoing USD appreciation presents headwinds for these markets.
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