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Index IDEA: Strong US dollar weighs on emerging markets equities

Emerging market (EM) equities have underperformed both US and developed international markets in 2018. The FTSE Emerging Index has declined 7.2% YTD compared to a 3.9% decline for the FTSE Developed ex US Index and a 6.2% rise for the Russell 1000 Index over the same time period.[1] 

New insights from FTSE Russell suggest that the direction of emerging market equities is very dependent on the direction of the US dollar relative to other global currencies.

Alec Young – managing director, global markets research, FTSE Russell

“Along with simmering trade tensions, US dollar strength has been among the biggest emerging markets headwinds this year as it’s lured capital away from developing nations. A firm greenback also makes developing nations’ dollar denominated debt more expensive to service. Emerging markets with large trade deficits that are most dependent on foreign capital inflows have been hit hardest. Examples include Turkey, South Africa, Indonesia and Brazil. History suggests the fate of EM stocks will remain highly dependent on the dollar’s trajectory. None of the drivers of recent US dollar strength—better relative economic growth, Fed tightening and relatively high, long-term rates have thus far shown any signs of easing.”

Get more information on FTSE Russell's global equity indexes.

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[1] Source: FTSE Russell. Data as of July 23, 2018. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

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