What a difference a few weeks makes. At the start of the year emerging markets were stuck in a “negative feedback loop”, says Elaine Moore in the FT. Jitters over slowing growth made investors reluctant to lend to them, and the lack of lending in turn compounded fears about growth.
But “as oil prices rise it doesn’t take long for investors to go from bearish to bullish”, says Shahzad Hasan of Allianz Global Investors. Oil, a key emerging-market export, has jumped by 50% since January, while further action by central banks has also bolstered global risk appetite.
This has coincided with an improvement in US data and signs that the Chinese government will provide further stimulus. What’s more, concerns over Chinese capital flight, which many feared could trigger a major devaluation of the yuan and a global currency war, have subsided.
Outflows have eased, while an investigation by the Bank for International Settlements suggests that much of the exodus has been due to Chinese companies paying back dollar-denominated debt, and to investors unwinding the dollar-yuan carry trade as the greenback strengthened, says FT.com’s Steve Johnson. It has not been a case of “panicked mainlanders” fleeing China.
Now that sentiment has improved, Brazil and Turkey are poised to tap international debt markets for the first time this year. The JPMorgan Emerging Markets Currency index has rebounded from its record low (see chart). More evidence, in short, that emerging markets may indeed have turned the corner.