Will Rising US Rates Damage Emerging Market Returns?

Emerging markets face a number of difficulties. Will a strong US dolloar, rising interest rates and weak commodity prices be too much for emerging economies to thrive?

Vanguard Asset Management 15 July, 2015 | 1:45PM
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This article is part of the Morningstar's Guide to Emerging Market InvestingMorningstar's "Perspectives" series features investment insights from third-party contributors. Here, Vanguard's Biola Babawale asks whether macro headwinds are too great for emerging markets.

Conventional wisdom says that weak commodity prices and a strong US dollar spell difficult times for emerging markets. Those who like conventional wisdom, or who see emerging markets as a homogenous set of economies, might like to consider the following data.

In the 12 months to mid-May 2015, the MSCI China Index rose 52% – although it has since fallen considerably – while the MSCI Brazil was down 18.2%. The MSCI India was up 16%, while the MSCI Turkey was down 3.4%. The explanation for this wide divergence is complex and at this point probably not fully understood. But whatever might be on the list of things about to happen, an all-encompassing ‘emerging markets currency crisis’ is not likely to be near the top.

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Vanguard Asset Management  is a wholly owned subsidiary of The Vanguard Group Inc., whose mission is to help clients achieve their goals by being one of the world's highest value providers of investment products and services.