The recently resurgent U.S. dollar could be one reason why investors are retreating from emerging markets equities. A stronger dollar raises external financing costs for developing economies and usually leads to lower commodities prices, a relevant point because many developing commodities are major commodities exporters.
Investors considering emerging markets should consider ignoring near-term noise, such as fund flows, and focus on fundamentals.
“As painfully demonstrated, despite secular improvements in current account positons and financial stability, EM assets are still vulnerable to tightening U.S. financial conditions. This is particularly true when Federal Reserve tightening is accompanied by a stronger dollar. With the U.S. economy experiencing good momentum, the Fed is likely to continue to tighten into 2019,” according to BlackRock.
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