Emerging markets rally on Fed caution
March 30, 2016, 2:46 pm

With oil prices somewhat higher and the Fed taking a cautious approach to rate hikes, emerging economies like Russia are seeing strengthened currencies and market performance [Xinhua]

In the past week, currencies and stock exchanges in emerging markets – which make up 40 per cent of the global economy – have strengthened considerably.

Partially also boosted by oil prices that are more than 25 per cent higher than their levels in January, Russia’s ruble jumped 0.7 per cent against the dollar on Wednesday.

Russia’s economy is heavily dependent on its oil and gas exports. Russian economists had warned that the country would be in trouble if oil prices were maintained below $30 a barrel. And for a while in February, the risk was considerable as oil prices fell to 11-year lows of $26.

But now that oil prices are pivoting around the $40 mark, Moscow’s benchmark MICEX has performed better since the beginning of the year. On Wednesday, it rose 1.56 per cent but was still trading than its monthly peak on March 18.

Meanwhile, the MSCI Emerging Markets Index – which measures growth in 23 emerging economies – was up 2.3 per cent on Wednesday.

It is now performing at its best in nearly five years.

Wednesday’s growth figures appear to confirm predictions made by JP Morgan analysts in November 2015 that emerging markets will see better economic growth in the coming quarters.

Now, Goldman Sachs, UBS Securities, Bank of America and Barclays – to name a few – all believe that emerging markets, such as Mexico, China, India and Russia may have turned the corner from a three-year drag which reversed their honeymoon growth rates in the wake of the 2008 US subprime mortgage financial crisis.

“2016 could be the year EM [emerging markets] assets put in a bottom and start to find their feet. There is the prospect of improved growth and better returns, even if it is not a rerun of the roaring 2000s,” a Goldman Sachs investment report said last week.

The report appeared to echo similar sentiments from International Monetary Fund’s chief Christine Lagarde.

Meanwhile, currencies and stock exchanges grew in Turkey, Malaysia, Brazil, South Africa, and China.

They were helped by capital inflows into emerging markets – which now appear at their most lucrative to foreign investors; in March, foreign investments reached nearly $37 billion.

This is a marked difference from just eight months ago when the Financial Times reported that capital outflow from emerging markets had reached $1 trillion.

The BRICS Post with inputs from Agencies