{"id":3543,"date":"2024-05-27T07:08:16","date_gmt":"2024-05-27T06:08:16","guid":{"rendered":"https:\/\/blogg.lnu.se\/china-research\/?p=3543"},"modified":"2024-05-28T08:15:11","modified_gmt":"2024-05-28T07:15:11","slug":"emerging-markets-and-a-strong-dollar","status":"publish","type":"post","link":"https:\/\/blogg.lnu.se\/china-research\/?p=3543","title":{"rendered":"Emerging markets and\u00a0a\u00a0strong dollar"},"content":{"rendered":"\n<p>Emerging markets are usually more sensitive to weak current account balances than advanced countries. A deficit in the balance on current account\u00a0urges for a currency inflow since it implies a debt for imports vis-a-vis other countries that has to be paid. This\u00a0inflow\u00a0can be done\u00a0in the\u00a0three following ways:<\/p>\n\n\n\n<p>\u00a4&nbsp;by&nbsp;receiving currency reserves via foreign direct investment (which often does not work&nbsp;as&nbsp;an available or sufficient&nbsp;financial source),<\/p>\n\n\n\n<p>\u00a4&nbsp;by&nbsp;borrowing money in foreign currency (mostly in U.S.&nbsp;dollar, USD), or<\/p>\n\n\n\n<p>\u00a4&nbsp;by&nbsp;selling stocks, bonds,&nbsp;etc&nbsp;to foreign investors (if such financial products exist&nbsp;in the emerging country&nbsp;and foreign&nbsp;demand for these papers&nbsp;is there).<\/p>\n\n\n\n<p>Statistics\u00a0show that emerging markets borrow the lion share of their foreign credits in\u00a0USD which may be challenging in times when the American dollar is strong on global currency markets.\u00a0This is actually the case.\u00a0Serving existing debt in USD uses to be even much more challenging.<\/p>\n\n\n\n<p>By the\u00a0way:\u00a0During a meeting the other day with American financial analysts,\u00a0I heard the view\u00a0that the USD historically tended to be strong when investments in research and development (R&amp;D) in the U.S. were high. This is explained by an increasing demand for American technology stocks\u00a0and also foreign\u00a0action for FDI in the U.S., thus leading to\u00a0a\u00a0high demand for the dollar and\u00a0therefore to\u00a0the strengthening of the American currency. I am not quite sure about the general validity of this\u00a0suggested correlation.\u00a0But\u00a0it can be observed that such conditions can be found these days.<\/p>\n\n\n\n<p>Back to emerging markets. What we can see today is an increasing willingness of certain emerging markets to avoid or decrease new borrowing in USD.&nbsp;However, this is not easy&nbsp;to achieve&nbsp;since USD&nbsp;markets&nbsp;function by&nbsp;far&nbsp;as&nbsp;the biggest global supplier of new loans, also to emerging markets.&nbsp;<\/p>\n\n\n\n<p>The ongoing situation\u00a0with the strong dollar\u00a0is, of course, particularly difficult for\u00a0emerging countries with high indebtedness in USD. Such countries may be found in all continents &#8211; countries that are or have been reporting\u00a0growing pressure on\u00a0their currencies in 2024\u00a0such as\u00a0the Nigerian Naira, the Egyptian Pound,\u00a0the\u00a0Turkish Lira,\u00a0the Indonesian rupee, the Argentine peso or the Brazilian real (watch\u00a0for\u00a0this\u00a0the following\u00a0IMF table:\u00a0<a href=\"https:\/\/stats.bis.org\/statx\/srs\/table\/e2?m=USD\">https:\/\/stats.bis.org\/statx\/srs\/table\/e2?m=USD<\/a>).\u00a0Of course, some of these and other weak currencies of emerging markets\u00a0have also\u00a0been impacted\u00a0by other negative factors than\u00a0the strong dollar, for example\u00a0domestic political ones.<\/p>\n\n\n\n<p>At the same&nbsp;time, there are also countries&nbsp;trying&nbsp;to reduce their exposure to the dollar (which also&nbsp;can be seen&nbsp;in the IMF table quoted above). Indonesia is such an example. However, such a trend will not be easy to achieve &#8211;&nbsp;but&nbsp;Thailand actually managed&nbsp;it&nbsp;in the past few decades.&nbsp;Perhaps another option may gain&nbsp;momentum&nbsp;as&nbsp;it is currently the case in South East Asia, i.e. trying to expand borrowing within the region&nbsp;at the expense of the USD.&nbsp;&nbsp;<\/p>\n\n\n\n<p><strong>Conclusion:<\/strong>\u00a0Analysts of emerging markets should\u00a0watch the further development of the USD\u00a0and its impact on\u00a0indepted emerging\u00a0markets.<\/p>\n\n\n\n<figure class=\"wp-block-image is-resized\"><img decoding=\"async\" src=\"https:\/\/lnu.se\/api\/media\/12178-fw350fh461cy28cw350ch350\" alt=\"\" style=\"width:94px;height:auto\" \/><\/figure>\n\n\n\n<p><strong><em>Hubert Fromlet<\/em><\/strong> Affiliate Professor at the School of Business and Economics, Linnaeus University<br><a href=\"..\/editorial-board\/\">Editorial board<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Emerging markets are usually more sensitive to weak current account balances than advanced countries. A deficit in the balance on current account\u00a0urges for a currency inflow since it implies a debt for imports vis-a-vis other countries that has to be paid. This\u00a0inflow\u00a0can be done\u00a0in the\u00a0three following ways: \u00a4&nbsp;by&nbsp;receiving currency reserves via foreign direct investment (which [&hellip;]<\/p>\n","protected":false},"author":126,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18946,545,13624,18943,10503,13620,18948],"tags":[],"class_list":["post-3543","post","type-post","status-publish","format-standard","hentry","category-africa","category-argentina","category-asia","category-brazil-and-mexico","category-other-emerging-markets","category-previous-articles","category-turkey"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\r\n<title>Emerging markets and\u00a0a\u00a0strong dollar - China Research<\/title>\r\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\r\n<link rel=\"canonical\" href=\"https:\/\/blogg.lnu.se\/china-research\/?p=3543\" \/>\r\n<meta property=\"og:locale\" content=\"en_US\" \/>\r\n<meta property=\"og:type\" content=\"article\" \/>\r\n<meta property=\"og:title\" content=\"Emerging markets and\u00a0a\u00a0strong dollar - China Research\" \/>\r\n<meta property=\"og:description\" content=\"Emerging markets are usually more sensitive to weak current account balances than advanced countries. A deficit in the balance on current account\u00a0urges for a currency inflow since it implies a debt for imports vis-a-vis other countries that has to be paid. This\u00a0inflow\u00a0can be done\u00a0in the\u00a0three following ways: \u00a4&nbsp;by&nbsp;receiving currency reserves via foreign direct investment (which [&hellip;]\" \/>\r\n<meta property=\"og:url\" content=\"https:\/\/blogg.lnu.se\/china-research\/?p=3543\" \/>\r\n<meta property=\"og:site_name\" content=\"China Research\" \/>\r\n<meta property=\"article:published_time\" content=\"2024-05-27T06:08:16+00:00\" \/>\r\n<meta property=\"article:modified_time\" content=\"2024-05-28T07:15:11+00:00\" \/>\r\n<meta property=\"og:image\" content=\"https:\/\/lnu.se\/api\/media\/12178-fw350fh461cy28cw350ch350\" \/>\r\n<meta name=\"author\" content=\"Hubert Fromlet\" \/>\r\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\r\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Hubert Fromlet\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\r\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/blogg.lnu.se\/china-research\/?p=3543\",\"url\":\"https:\/\/blogg.lnu.se\/china-research\/?p=3543\",\"name\":\"Emerging markets and\u00a0a\u00a0strong dollar - China Research\",\"isPartOf\":{\"@id\":\"https:\/\/blogg.lnu.se\/china-research\/#website\"},\"datePublished\":\"2024-05-27T06:08:16+00:00\",\"dateModified\":\"2024-05-28T07:15:11+00:00\",\"author\":{\"@id\":\"https:\/\/blogg.lnu.se\/china-research\/#\/schema\/person\/3c3b67b85e96d1cc89d09dda3a189b38\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/blogg.lnu.se\/china-research\/?p=3543\"]}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/blogg.lnu.se\/china-research\/#website\",\"url\":\"https:\/\/blogg.lnu.se\/china-research\/\",\"name\":\"China Research\",\"description\":\"A discussion forum on emerging markets, mainly China  \u2013                                          from a macro, micro, institutional and corporate angle.\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/blogg.lnu.se\/china-research\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/blogg.lnu.se\/china-research\/#\/schema\/person\/3c3b67b85e96d1cc89d09dda3a189b38\",\"name\":\"Hubert Fromlet\",\"url\":\"https:\/\/blogg.lnu.se\/china-research\/?author=126\"}]}<\/script>\r\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Emerging markets and\u00a0a\u00a0strong dollar - China Research","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/blogg.lnu.se\/china-research\/?p=3543","og_locale":"en_US","og_type":"article","og_title":"Emerging markets and\u00a0a\u00a0strong dollar - China Research","og_description":"Emerging markets are usually more sensitive to weak current account balances than advanced countries. 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