Diminished capital flows due to currency risks could also weigh on the emerging markets. Since investors would pull out of foreign markets if the U.S. dollar strengthens, emerging market currencies would weaken and the local central banks could tighten rates or drain banking liquidity to help stem the flows.
While some emerging markets, India being a prime example, have benefited from sliding oil prices, Malaysia is not one of those markets. In fact, the country and EWM have been rocked by plunging commodities prices.
“Then there is the country’s deteriorating terms of trade situation. In 2014 commodity exports accounted for 26% of exports and 18% of GDP. With palm oil, crude and refined products and natural gas, Malaysia’s key export commodities all heading lower, this is putting pressure on Malaysia’s fiscal situation,” according to the Global Investor.
iShares MSCI Malaysia ETF
