Investor confidence towards emerging market assets has risen since China dropped its pandemic-era zero-COVID policy late last year but worries that the U.S. Federal Reserve has quite a bit more tightening in store have put a damper on sentiment.
Emerging markets face the significant risk of an extended series of Fed interest rate hikes and a strengthening dollar, both of which increase the burden of hard-currency denominated debt and lead to tighter financial conditions.
But China’s reopening is expected to stimulate domestic consumption and tourism, which would benefit its neighbours in North and Southeast Asia, as well as various emerging economies that rely on commodity exports.
Despite the threat posed by higher U.S. yields in recent weeks, the MSCI Emerging Markets Currency Index remains almost 3% below its early February peak, as dollar bulls have reemerged.
“China’s re-opening should drive stronger EM growth relative to the U.S.,” noted…
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