theglobeandmail.com
Emerging Market Rally Faces Headwinds Amidst US Tariff Uncertainty
Emerging market stocks have rallied 17% this year, driven partly by a weak dollar, but experts warn of potential risks from looming US tariffs and a possible US recession.
- What are the potential risks and challenges that could threaten the continued growth of emerging markets in the near future?
- The current EM rally is largely attributed to the weakening dollar and increased investor optimism. However, the recent rise in the dollar and the looming threat of US tariffs on several EM countries, including India and Brazil, pose significant risks. The consensus trade in EM could become a concern if these risks materialize.
- What are the immediate impacts of the recent surge in emerging market stocks and currencies, and what factors are driving this unexpected rally?
- Despite initial concerns, emerging markets (EM) have seen a surprising rally this year, with MSCI's EM stocks index up 17% and most major EM currencies experiencing double-digit gains. This is partly due to the dollar's 10% decline from January to June, mirroring a similar trend in 2017 during Trump's first term. However, experts warn that this rally might be short-lived.
- What are the long-term implications for emerging markets, given their historical performance and the current global economic environment, and what factors could significantly affect their future growth trajectory?
- The future outlook for EMs hinges on several factors, including the finalization of US tariffs, the dollar's trajectory, and the global economic climate. A US recession, which has a 40% chance according to JPMorgan, could trigger a global selloff, potentially reversing the recent gains in EM markets. The long-term appeal of EMs remains uncertain, given the lack of investment inflows into EM bonds and the slow growth of equity investments since the 2008 financial crisis.
Cognitive Concepts
Framing Bias
The article's framing is largely positive towards the emerging market rally, emphasizing the significant gains and the optimistic outlook of several investors. The headline could be interpreted as suggesting a positive bias towards EM performance. While concerns are mentioned, the overall tone and emphasis lean towards highlighting the success of the rally.
Language Bias
The article uses language that, while factual, often leans towards portraying the emerging market rally in a positive light. Phrases such as "basking in the glow" and "surprise rally" convey a sense of excitement and success. While not overtly biased, the choice of words could subtly influence reader perception.
Bias by Omission
The article focuses heavily on the positive aspects of the emerging market rally, mentioning the concerns of major investors but not delving deeply into potential negative consequences or alternative perspectives. The impact of potential US tariffs on specific emerging market economies beyond a few examples is not thoroughly explored. The long-term sustainability of the rally is also not sufficiently examined, focusing more on short-term gains.
False Dichotomy
The article presents a somewhat simplistic eitheor scenario: either the emerging market rally continues, fueled by a weak dollar, or it reverses due to rising US tariffs and a potential recession. It doesn't fully explore the possibility of a more nuanced outcome or other factors influencing the markets.
Sustainable Development Goals
The article highlights that emerging markets have seen significant growth, with MSCI's emerging market stocks index up 17% and most major EM currencies seeing double-digit gains. This growth can contribute to reduced inequality within these countries by creating economic opportunities and improving living standards for a broader segment of the population. However, the benefits are not evenly distributed and the impact on inequality is ultimately complex and context-specific.