Emerging markets hit by ‘toxic’ mix of rising rates and slower growth

Emerging markets hit by ‘toxic’ mix of rising rates and slower growth

Emerging market currencies have fallen by their most since the early stages of the pandemic as a “toxic” mix of rising US interest rates and slowing Chinese growth dims the outlook for developing economies around the world.

An MSCI gauge of emerging market currencies has tumbled by more than 4 per cent since early April as the Federal Reserve embarks on an aggressive tightening of monetary policy in a bid to rein in high inflation, boosting the US dollar while battering stocks and bonds. Draconian coronavirus lockdowns in China have piled on further pressure by threatening a crucial source of demand for emerging economies.

The Chinese renminbi fell to its weakest level against the dollar in more than 18 months on Monday after data showedthe country’s exports grew at the slowest pace in two years last month, spurring a further bout of selling across emerging market currencies.

“We have had this cooling down of Chinese demand coming at a time when the Fed is hiking interest rates and inflation is still pushing higher,” said Cristian Maggio, head of emerging markets portfolio strategy at TD Securities. “As if that weren’t enough we still have the risks related to the war in Ukraine. It’s a