The current trade war between the world’s biggest economies has financial experts in a bit of a manic state. And with the Federal Reserve accelerating its rate hikes and oil prices skyrocketing, currencies and stocks are on track for their worst quarter since September 2015.
As the Trump Administration increases talks about protectionist issues, every developing-nation currency retreated with a three-day drop to 3.6%. The Chinese yuan slid for a 10th straight day resulting in the longest losing streak since March 2014. The Hungarian forint dropped to an all-time low as the central maintained a stagnant monetary stance.
Trade War?
In fact, a leaked report from a Chinese backed think-tank reveals that a “financial panic” may be abreast in the world’s second-largest economy. Shireen Darmalingam, a macro-economic strategist at for Stanford Bank Group, said, “Fresh tensions between the US and China continued to damage sentiment and risk appetite for emerging-market assets.” Concluding with “Global markets remain on tenterhooks.”
Investors are concerned about a possible trade war between the world’s biggest economies. The Trump Administration insists the U.S. will stay open to Chinese investments, and Trump’s economic advisor, Larry Kudlow, said he doesn’t foresee the U.S. backing out of any trade agreements. Here’s where it gets interesting.
An Uncertain Future
Damage is already evident across the globe, and perhaps no more so than in Emerging Markets. The unpredictability of the yuan could result in global impact. Given the size of the Chinese economy, the economic and financial impacts of a sustained and volatile yuan, coupled with the financial linkage across the region, may mean trouble for EMs around the world.
As of late, EM currencies are in a continual, downward trend, prompting nervous investors to pull their money and allocate it to perceived “safe havens.”
Only time will tell exactly what the future holds for EMs affected by this supposed trade war, but with a rising U.S. dollar, plummeting global currencies, and a possible trade standoff between the world’s two largest economies, the future is certainly uncertain.
