Riesgo y rentabilidad en los mercados emergentes

The three-day BRICS summit of emerging market economies (EMEs) in Kazan, Russia concluded today. The group launched by Brazil, Russia, India, and China in 2006 has done little in terms of rivaling US global economic and financial hegemony. However, the Russia-Ukraine war and fears of financial sanctions imposed by the US and its allies on adversaries have caused many countries to align closer to Russia and China or apply to join the BRICS.

Let's review some of the other recent developments in EMEs:

(1) Dollar versus EME currencies and bond prices. As expectations for more Fed rate cuts have faded, the US dollar has strengthened. A stronger dollar raises the cost of imports, risks capital outflows, and weighs on dollar-denominated debts for EMs. While EME currencies have slipped against the dollar in the past few weeks, they're still stronger than at any time in history (chart).

Meanwhile, EME bonds have weakened recently, but have performed relatively well as interest rates fall in most countries (chart). However, they haven't recovered much from their collapse in response to the Fed's latest tightening cycle during 2022.

A stronger dollar tends to put downward pressure on EME stocks. However, despite dollar strength in the post-pandemic period, the MSCI EME stock price index has continued climbing, but remains below its 2021 record high (chart).