Emerging Markets: Ruby Slippers

Emerging Markets struggled with a number of threats in Q3, including increasing interest rates, trade threats, and fluctuating currencies.

The yellow brick road was hard to find. As a result, stock markets were generally down and their currencies were mixed.

Of course, the largest member of this group is China, whose economy has been slowing, and who is at the brunt of trade disputes with its largest trading partner, the U.S. By the end of the quarter, there were new tariffs placed on about $200 billion of Chinese goods imported to the U.S. and those tariffs are slated to increase in January. China then countered with new tariffs on $60 billion of U.S. goods. With all of this and a generally slowing economy, China’s stock market slumped to its lowest level since 2014.

Turning the globe to Europe’s emerging economies, the EU completed its bailout payments to Greece with little fanfare. Greece can now tap financial markets for future financing. Turkey’s currency fell sharply as inflation accelerated due to generous lending practices by Turkey’s banks.

While volatile, emerging markets still have amazing growth prospects as their middle classes continue to grow. The volatility may be illustrated by the fact that in Q3 alone, the best performing stock market was Thailand’s, up almost 15% while the worst performing stock market was Turkey’s, which was down almost 21%. That volatility is one of the reasons that EM, despite their growth potential, only make up about 11% of the world’s stock markets.