Emerging markets crisis broadening – Danske Bank

Analysts at Danske Bank note that the emerging markets crisis broadened as South Africa's economy tumbled into a recession and Indonesia's rupiah joined the ranks of EM currencies hurtling towards fresh lows.

Key Quotes

“The sell-off encapsulates almost all EM assets, including currencies, bonds and equities. Emerging market equities have fallen throughout the year and currencies have been battered since April. Dismal performance has been in stark contrast to a stellar 2017.”

“This EM crisis shares common characteristics with past EM crises in that these economies are dependent on external financing due to weak macroeconomic fundamentals amplified by large current account deficits. In times of rising US rates and USD, these economies become vulnerable to outflows.”

“This particular EM crisis bears an additional imprint, which seems the hallmark of recent investing times, namely geopolitics. Among the new 'fragile five', Russia and Turkey have seen their crises aggravated by geopolitical confrontation with the US. Rising US rates, weak EM macro fundamentals and jittery geopolitics make for a poisonous concoction for EM assets.”