Emerging market – A Weaker Dollar Favours EM | Harris Fraser
Research Insights
21 January, 2021
Emerging market – A Weaker Dollar Favours EM

With the year coming to an end, the market has already set its sights on the year ahead. Anticipating the economic recovery post-COVID, emerging market equities continued the climb. Over the month of December, MSCI Emerging Markets Index rose 7.15%.

Daily cases in emerging markets economies remain at roughly the same level as it was, while some countries saw daily cases climb, key economies such as India have the pandemic under relative control. With the vaccinations rollouts ramping up along with the production, the outlook for the global economy is bright. As emerging markets tend to thrive in cyclical upswing environments, the year of recovery should be rather favourable year for the market.

We are further convinced that emerging markets will perform with the backdrop of a weak dollar. As the Dollar has become a less attractive currency due to the low interest rate and increased supply from the quantitative easing programmes, there has been downward pressure on the greenback since mid-2020, this is expected to further worsen with the widening fiscal deficit arising from the stimulus bills, which is expected to weigh down on the dollar. Historically, a weak dollar favours emerging market equities, and this is expected to stay true for the year to come. Hence, we will remain positive on emerging markets, in particular Asian markets for their better resilience and stronger upside.

Emerging market – A Weaker Dollar Favours EM

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