Emerging Markets Back Under Pressure Amid Stubborn Inflation

Emerging markets (EM) bulls may have to continue playing the waiting game after a rough end to the third quarter. Thankfully, leveraged exchange traded funds (ETFs) can keep traders in the game.

Stubborn and sticky inflation has been feeding into the higher-for-longer narrative the U.S. Federal Reserve has been adopting as of late. Rate hikes continue to keep the dollar elevated, which puts EM assets in a precarious position.

To add to that wall of worry is China’s stumbling this year. 2023 started off well for the second largest economy, but lingering real estate issues have thrown a speed bump at its growth trajectory.

“Emerging markets ended a volatile quarter with China’s plunging economy, spiking US yields and rising oil prices sparking the worst decline in stocks in a year,” Bloomberg reported.

In addition, as also reported by Bloomberg, EM equities “saw a $470 billion wipe-out, currencies posted back-to-back quarterly losses and sovereign-risk premiums hovered at a three-month high,” tamping down hopes of EM assets roaring back in 2023. That is certainly not welcome news for bullish traders in EM.

“It’s now clear that expectations at the start of the year for a rally in Chinese markets and outperformance by emerging markets over developed markets have not panned out,” the report added.

^MSEM Chart

^MSEM data by YCharts