What's going on?
The recent market selloff hit assets ranging from stocks to oil to currencies like the dollar. But there has been a group of winners: emerging markets.
What does this mean?
Not so long ago emerging markets like Turkey and Argentina were in a bit of a pickle, as inflation spiraled and their currencies collapsed – but things are now looking up. Turkish house sales have started to bounce, boosted by government regulation, and consumer confidence is also on the rise.
A falling oil price – which some argue has been helped by the limited impact of US sanctions on Iranian oil production in the short term – is a big boon to countries which rely heavily on overseas supplies to meet their energy needs. Emerging markets from India to Indonesia now enjoy lower shopping bills for fuel – meaning there’s more money for consumers to spend on goods and services, and for businesses to invest in growth.
Why should I care?
For markets: Emerging markets are re-emerging.
While stock markets in more developed areas have been selling off throughout November, emerging market currencies – particularly those of big energy-buying countries – have strengthened 2.6% on average, relative to the dollar (tweet this). That makes buying things from overseas cheaper – and allows these countries’ extra pennies to drive stronger economic growth. Not a bad state of affairs for them – assuming things stay like this.
The bigger picture: Emerging markets can also drive developed markets.
Emerging markets are closely connected to the world’s more established economies. Some emerging markets are mainly producers of goods, while others are predominantly consumers (China makes up about 18% of the world economy). Either way, they’re important for global economic growth – especially while many developed economies, like Europe, are struggling. If emerging markets are doing better, they’re more likely to buy up goods from abroad (including luxury items), helping markets like Europe and the US. It may be time to reconsider those gloomy growth forecasts…