Bear In The Woods: Emerging Markets Credit Crisis

Posted on 10-25-2018

On September 6, 2018, the MSCI Emerging Markets (EM) Index — which tracks stocks in 24 of the world’s largest developing economies — dropped 20% below its January high, a level of decline that is commonly considered a bear market. Hong Kong’s Hang Seng Index reached the same negative milestone a few days later. China’s benchmark Shanghai Composite entered bear territory in June.

In the meantime, the U.S. bull market continued its charge, with major indexes setting new highs despite escalating trade tensions.

What’s behind the big declines in emerging markets? This week, Craig Siminski, of the Equity Design Group, shares a timely article showing how the stalking bear in these economies might affect U.S. investors.


Trade Troubles

The trade conflict between the United States and China is only one of several challenges facing emerging markets, but it has played a major role in recent declines. China, the world’s second-largest economy, is the giant of emerging markets, with trade relations around the globe. Any policy that threatens China reverberates throughout the developing world. And declines in Chinese stocks, which account for about 30% of the MSCI EM Index, have an outsized effect on the markets.

Credit and Currency

Although the threat of a trade war is serious, the deeper problem for developing economies lies in the credit markets. After the financial crisis, when interest rates in the United States, Europe, and Japan were at rock-bottom lows, investors were attracted to…

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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 20 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.

For more information, give him a call, stop by his office, visit him on the web, or email him.

Please Remember to tell Craig the Green Bay News Network sent you!