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Rising Dollar Batters Emerging Markets

The article titled “Rising Dollar Batters Emerging Markets” presents information about the shuddering effect of the rising dollar on emerging markets. According to the article, emerging markets have experienced tumults as a result of the rallying dollar. The greatest effects have been felt in stocks, bonds, and currencies. To illustrate the effect of a rising dollar on emerging markets, the article notes that the Turkish lira has declined by 5.3% within a period of just one month to hit its lowest value against the dollar. The currency of Argentina, another emerging market, has also lost its value against the dollar by 5% over the same period despite efforts by the country’s central bank to stem the fall by intervening in the foreign-exchange market. The fact that the MSCI Emerging Markets Index and JPMorgan index have declined by 1.5% and 3.6% respectively is a clear indication that the rising dollar has had a battering effect on the emerging markets.

According to the article, the decline is a clear illustration of the uncertain nature of emerging-market assets.  In addition to the new risks posed by higher interest rates in the US, investors are not sure of the path that global growth will take.  The leading risk associated with emerging markets is the cost that these economies have to bear when servicing debts that are denominated in dollar. This cost increases as the dollar gains against their local currencies. Both Turkey and Argent have huge debts in dollars. Additionally, the article notes that the rising dollar has helped contain the prices of raw materials such as oil and copper that forms the bulk of exports in emerging-market economies.

The article points out that increased interest rates in the US could cause some investors to move their investments of out the emerging-market assets to invest in the treasury bonds in the US. This, in turn, could weaken the currency of these economies and send inflation higher since they will have to spend more local currency when paying for imports. Argentina, for instance, has already raised the benchmark interest to 30.25%. The tumult being experienced in emerging markets could also spiral to China, a country that has been struggling to contain the fall of Yuan against the dollar and the resulting investment outflow.

From reading the article, I have learned that the rising dollar has had a negative impact on the developing economies. It has exposed the weaknesses of these markets and as a result, some investors are considering unwinding their investments in currencies, bonds, and stock. Moreover, I have learned that the ripples from the surging dollar could spread to other countries. What surprised me; however, are the different views among investors. While most are considering moving their investments to stable economies, others think that this is the right time to invest in emerging markets. It follows that no particular investor is sure of what the market is going to be like in the days ahead. Rising Dollar Batters Emerging Markets