EMs remain vulnerable to the sway of US economic policies, even as momentum for de-dollarizing the world economy grows

EMs at a crossroads: As another Donald Trump presidency looms, Bloomberg Economics sees emerging market economies (EMs) as having some cause for optimism — as well as significant causes for concern. While EM interest rates and growth prospects may not be as tightly linked to developments in the US as they once were, financial vulnerabilities and as-of-yet unrealized chances for coordination could hamper EM attempts to adjust to a new global economic normal.

In some ways, EMs’ independence from the US’ economic sphere has never been greater: Bloomberg’s research outfit points out that EMs’ rate moves are beginning to break away from the US Federal Reserve’s easing and tightening cycles, with several EMs lowering rates before the Fed did. Some countries have moved in the opposite direction of the Fed, with Brazil and Russia hiking rates shortly after the Fed’s initial 50 bps cut in September — suggesting that at least some EMs’ fates are beginning to decouple somewhat from the US economic outlook.

But US economic policy still has an oversized impact on EMs — especially following Trump set to soon take up the Oval Office: Egypt, along with Argentina and South Africa are pointed to as EMs that stand out as being particularly vulnerable to building debt burdens on the back of higher global rates pushed up by a forecasted uptick in inflation in the states. The new Republican president’s talk of hiking tariffs could also have an outsized impact on certain countries with export industries that target the US.

So far, Brics is yet to live up to its promise of de-dollarizing the world economy: Brics has yet to capitalize on its potential to coordinate policies and boost trade across its member economies, Bloomberg Economics writes. While the bloc has continued to grow in economic weight, it has struggled to reduce its reliance on the USD and has failed to find a mechanism to settle trade between members in alternative currencies — a key condition for decoupling EM growth from US policy.

MARKETS THIS MORNING-

Asian markets are starting the day in the red, as the markets react to inflation data for China that came in lower than forecast, putting into question the country’s economic recovery. Leading the pack in the red was Hong Kong’s Hang Seng that was down 2.4% at the time of writing, followed by Korea’s Kospi at -0.9%, Japan’s Nikkei at -0.2%, and China’s Shanghai index at -0.1%

THE CLOSING BELL-

The EGX30 rose 0.4% at yesterday’s close on turnover of EGP 3.5 bn (18.0% below the 90-day average). International investors were the sole net sellers. The index is up 26.1% YTD.

In the green: Faisal Islamic Bank - EGP (+10.2%), Juhayna (+3.2%), and Madinet Masr (+1.7%).

In the red: Ezz Steel (-4.0%), Eastern Company (-1.8%), and GB Corp (-1.5%).