Recent events have put pressure on emerging market assets.  Our sense is these stresses are idiosyncratic to particular emerging economies rather than systemic.

Financial markets seem programmed to believe that a rising US dollar and rising interest rates are bad for emerging economies. Remember the ‘taper tantrums’ in 2013 and the anointing of five key emerging economies (India, Indonesia, Turkey, South Africa and Brazil) as the ‘fragile five’?

A similar dynamic is playing out in 2018 as emerging markets are being challenged by a stronger US dollar, higher interest rates and a significant rise in oil prices. Higher oil prices are good for emerging economies on average, but bad for the oil importers.

Add to that considerable uncertainty with respect to trade policy, particularly in the US, and the scene appears to set for a challenging period ahead. Debt levels are also higher and this is not just an emerging market phenomenon.

But this is not 2013. This year, conditions are generally more positive across the emerging market complex than they were five years ago. On average GDP growth is stronger, inflation is lower and current account balances are in better shape.

However, it is not a universally ‘better’ story. The current environment has been most challenging for Argentina and Turkey, both of which are experiencing a trend deterioration in their external imbalances, making the required offsetting capital inflows vulnerable to negative shifts in sentiment. Indeed, both currencies have suffered considerable weakness this year.