Emerging economies facing the brunt of low commodity prices and a robust US dollar could expect some respite due to central banks intervention and stabilizing oil prices.
The US dollar weakened in the last week of April 2016 after the Fed strengthened prospects for two interest rates hike later this year and the Bank of Japan did not change the rates. The oil prices are also expected to steady after traders booked profits.
According to Nandini Ramakrishnan, Global Macro Strategist at JP Morgan Asset Management;
“If those lack of headwinds remain, then you have an emerging market complex that, if you are selective about it and you pick the companies that have an earnings growth forecast, which they haven’t had across the board for much of them, then you do have a good play, valuations wise for emerging markets.”
The robust US dollar along with policy stagnation have been a major risk for the currencies of emerging economies. The trend began towards the end of 2014, however emerging economies have overcome the issues and have had improved development, better reforms and steady currency, though the fluctuation in the US dollar is still a concern.
The slowdown in the Chinese economy has also impacted the international monetary markets. Investors are anxious that the slowdown could affect international development, however experts believe China’s economic issues can be resolved. The debt is expressed in regional currency; therefore, it is not an exchange rate issue. The total debts are against the banks, which are controlled by the government, hence it is the government’s concern to manage it.
Some experts have stated the basics have enhanced for emerging economies and growth is projected to improve in the future.
According to Marci Ruijer, Lead Portfolio Manager of NN IP’s Emerging Market Debt Hard Currency Strategies at NN IP Investment Partners,
“Inflows are returning to emerging market debt as valuations are attractive from a historical perspective and relative to developed market bond yields.”
However, the volatility in the international market environment is still impacting investor sentiment.
Emerging economies have witnessed a turbulence in recent times and instability is expected to remain in the short-run. Analysing debt currency of emerging economies, the critical aspects to monitor in the months ahead are the oil price, the decisions of the OPEC, the existing changes in the market in China and the projected rate path of the US Federal Reserve.
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