It's not just EM currencies — which fell 2.0% against the dollar in May — that had a bad month...

Is This Really The End For The Great Emerging Markets Bull Run?

by Matthew Boesler

Emerging markets (EM) have come up against two earth-shaking developments in 2013: 

• (1) slowing growth in China, coupled with the apparent end of the commodity supercycle; and 
• (2) the rise of the U.S. dollar and Treasury yields, which have been especially spurred along in the past month by fears that the Federal Reserve will begin tapering back monetary stimulus sooner than expected.

The prospect of Fed tapering sparked a sizable rally in the dollar and a sell-off in the U.S. Treasury market over the course of May, sending bond yields to their highest levels in over a year.

The chart below shows a cross-section of some of the worst performers against the U.S. dollar in EM (plus Australia) since May 2, which is when the Treasury sell-off really got started.

Since then, the South African rand has depreciated 12.8% against the U.S. dollar, while the Australian dollar has fallen 7.1%, the Brazilian real is down 6.6%, the Mexican peso has retreated 5.2%, the Turkish lira is 4.6% lower, and the Polish zloty has lost 3.9%.

However, it's not just EM currencies — which fell 2.0% against the dollar in May — that had a bad month.


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