Emerging Markets Face Uphill Struggle in 2016

2016 was billed as the year emerging markets (EM) would make a comeback, but some analysts say the years of stunning growth in developing economies are over.

EMs have faced a tough ride since late 2013 after the U.S. Federal Reserve decided to start rolling back its massive bond-buying program. A few economies have also struggled with weak currencies and high current account deficits and came to be known as the “Fragile Five.” These countries included India, Indonesia, Brazil, Russia and Turkey.

Following this, the slump in commodity prices and fears of a Chinese slowdown kept the pressure on these economies. Things have however started to improve for a few countries, like India and Indonesia, who worked to introduce political and economic reforms.

“The emerging markets growth story was a phase, but nevertheless investors who have a strong presence in emerging markets will continue to facilitate a process of expansion that will result in strong returns,” Levy Raiz Partner at venture capital fund Flint Capital told CNBC via email.

The MSCI emerging markets index has risen 1.1 percent this year after a fairly rough start to 2016. Chinese stocks tumbled early in the year due to weaker-than-expected manufacturing data, depreciation in the yuan and the introduction of circuit breakers in the stock market.

“Emerging market equities have been in a downtrend since 2011, characterized by bear market rallies, which have been sparked by valuations and sentiment hitting extreme levels and economic data bottoming,” Patrick Cadell, manager of the Liontrust Global Fund, told CNBC via email.

via CNBC

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza