Negative headlines weigh heavy on Emerging Markets

August was dominated by negative news from the developing countries, or Emerging Markets.

The news was particularly bad from Turkey, South Africa and Argentina. Common to all these countries is their large foreign debt in hard currency, together with large ongoing budget deficits and balance of trade deficits (with the exception of Turkey). As the U.S. Dollar has shown an upward tendency for most of the year, the national debt of these countries has steadily become more difficult to service, says writes Chief Strategist at Sparinvest, David Bakkegaard Karsbøl, in his market comment for September.

Developments in the EM countries’ debt markets do not yet seem to have any significant effect on the developing markets. Apart from a handful of primarily Southern European banks and property developers with exposure in Turkey, a deterioration of Turkey’s problems will probably not lead to a spill over into other markets.

The stock markets have, however, received several helping hands in the form of quite a strong earnings growth, Trump’s tax reform and deregulation, together with a solid momentum and low volatility. However, in my view, many of these helping hands will disappear as we enter 2019, and unless the leading indicators soon bottom out it will be difficult to retain the stock market’s current momentum.

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