During much of this year, emerging markets have resembled a giant game of country whack-a-mole. Just when you thought one idiosyncratic story was temporarily under control, another one popped up. Whether it was Turkish policy mistakes, Argentine capital flight, Brazilian political risk, South African land reform or Russian sanctions fears, there has been no shortage of negative headlines.
The result has been “EM contagion” fears hitting levels not seen in years. While the collection of country fragilities has not helped, however, we do not believe they have been the cause of EM’s weakness this year. Instead, they are a symptom of the overarching investment theme for 2018: US dollar liquidity withdrawal.
Tighter, faster, stronger
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