Emerging markets in the current investment scenario

Since the US presidential election, emerging markets (EEM) have seen huge fluctuations. President-elect Donald Trump’s proposed protectionism approach, the stronger US dollar (UUP), and the steeper yield curve are mainly responsible for the fall in performance.

Why Emerging Markets Are Suffering in Current Environment

Stronger US dollar

The iShares MSCI Emerging Markets ETF (EEM), which tracks the performance of emerging markets (VWO) (EDC), fell nearly 6.5% between November 8, 2016, and December 30, 2016. The US dollar index rose nearly 4.4% during the same time period. The dollar index and the emerging markets have a negative correlation.

Trump’s protectionist approach

Trump’s protectionist approach could restrict the financial and trade flows between the United States and China. His proposed economic policies mainly aim to create jobs in the United States (QQQ) (SPY). He said during his campaign that he will put higher import duties on various Chinese products, which will help the domestic market in the United States (IWM). This protectionist approach is creating nervousness in the emerging economies.

Steeper yield curve

Now various yield curves around the world are steepening. The US (SPY) (IVV), the UK (EWG), Germany (EWG), and Japan (EWJ) are all seeing steepening yield curves due in part to the Fed’s hawkish tone for 2017. The Fed anticipates three rate hikes during the year.

Why Emerging Markets Are Suffering in Current Environment

The yield curve has a significant correlation with economic growth. A steeper yield curve indicates rapid economic growth in the future. As bond prices fall, markets anticipate that future interest rates will be higher. A higher interest rate is appropriate when the economy is stronger. Likewise, an inverted yield curve indicates a recessionary situation in the economy (IWM) (VOO). As more growth is expected in the US economy, money may remain in US markets.

In the next part of this series, we’ll analyze the advice Goldman Sachs has given regarding investment in the equity market.

Latest articles

President Trump is not happy with the present Fed rate cut. He wants the cutback to be higher. So high that the interest rates are negative.

Yesterday, Goldman Sachs' strategist warned of high volatility in October. Based on Goldman Sachs' data, since 1928 volatility in October is 25% higher.

On September 19, at Delivering Alpha Conference, Jim Chanos said Grubhub (GRUB) is a very good short. He said that Guruhub is almost not making any money.

The Chinese delegation canceled planned goodwill visits to US farms because of trade war escalations. This affected markets yesterday.

Tesla (TSLA) CEO Elon Musk is one of the most widely followed billionaires on Twitter. His love for Twitter is no secret.

The pace that internet video streaming has evolved is nothing short of revolutionary. Streaming is a serious threat to the cable TV industry.