πŸ”’ Bad news for emerging markets as US raises interest rates again

By Felicity Duncan

That sucking sound you hear is the sound of capital being vacuumed up into the USA. For about ten years after the financial crisis, ultra-low interest rates in the US, Europe, and Japan created a glut of liquidity. Money went sloshing around the world and found its way into all kinds of places – including emerging market debt and equities.

interest rates, emerging markets
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But now, the US is raising its rates – it announced its eighth consecutive rate hike since 2015 on Wednesday, taking its Fed funds rate to over 2%. As US interest rates rise, US assets, including Treasuries and the US dollar, become relatively more attractive. That spells bad news for emerging markets like South Africa, which have taken on a lot of US dollar-denominated debt over the last few years. As liquidity dries up, weaker markets are going to be exposed. That’s what happened to Argentina and Turkey, and if South Africa is unlucky, we could be one of the next in line for a drubbing.

In Premium today, you can learn how fast-growing economies in Africa are attracting foreign investments and you can read about the growing competition in electric markets (and what that may mean for Tesla). I’d also like to remind you to sign up for our Biznews Global Share Portfolio webinar, which is scheduled for lunchtime today. Alec Hogg will be giving you all the latest news about our high-growth global portfolio – you can sign up here.

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