What’s Contagion Risk?

September 17, 2018 2:42 am Published by

TRADE DISPUTES

In financial markets, a contagion is increasing focus on fears that weak performance of an asset class or sector will spread and lead to investment losses. This is the case with emerging markets equity right now. On June 29, I wrote about increasing investments in haven currencies over fears that the trade disputes between the US and China would cause economic instability in other countries. Chinese Yuan and US Trade Dispute Well, that situation has worsened now since the South African economy has officially been in recession since last quarter, the first time since 2009. Currencies values are taking a beating around the globe. Turkey, Indonesia, and Argentina have all posted record lows in trading. Further, the MSCI index of emerging market “… currencies dropped for a fifth time in six days, the lowest close in more than a year.”

MSCI INDEX

Bloomberg MSCI is the global index leader for emerging market equities and fixed income and virtually all securities held in emerging market economies are measured against an MSCI benchmark. Meanwhile, the Fed continues to raise rates here in the US and this does not bode well that there will be an improvement anytime soon. Even as Central banks announce measures to slow losses in FX markets, the actions being taken are of little effect. Even India is feeling the effects. A global investment strategist at JPMorgan Private Bank was quoted saying, “Emerging markets is the best asset class for the long-term due to growth potential, but the time hasn’t come yet to start buying.” There is too much volatility, and I would agree.

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This post was written by Daniel Jones

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