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Tue 2 Oct 2018 11:40 AM

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Three reasons why a weakening dollar will boost emerging markets

Its fall from multi-year highs will offer relief to developing nations

Three reasons why a weakening dollar will boost emerging markets
The US monetary policy is not suitable for the economies of the GCC, experts believe
Three reasons why a weakening dollar will boost emerging markets
External debt: One of the big road bumps in emerging markets over the summer has been the burden of debt, much of it held in US dollars. The rise of the dollar has pushed up the cost of servicing that debt into unmanageable levels – as witnessed in Argentina, which was forced to turn to the IMF for a $50bn loan when the Argentine peso plunged against the dollar in April.
Three reasons why a weakening dollar will boost emerging markets
Commodity exporters: As a weaker dollar is usually paired with a rise in commodity prices, this will be viewed positively across the Gulf, which requires a higher oil price to help refill the public purse. The inverse relationship was seen in full effect back in January when a dollar slip helped to push the price of oil well over the $70 per barrel, where it has remained since. Public spending ought to rise.
Three reasons why a weakening dollar will boost emerging markets
Capital inflows: As the dollar weakens, investors are often tempted to chase higher yielding emerging markets for returns, which are used to fund infrastructure spending. As such, emerging market bonds have withstood a recent sell-off in global debt markets. According to JPMorgan, emerging market bond funds have attracted $9.3bn in inflows since the beginning of this year.