Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

Indian Prime Minister Narendra Modi. Economic growth among emerging-market deficit economies has been weak, except for India.

Saurabh Das/AP

Donald Trump's electoral triumph has stoked expectations for a fiscal stimulus that will propel U.S. economic growth and spread to the rest of the world. For emerging markets, though, his presidency ends a long party. For some of them, it's about time economic reality hit home. For others, the future looks a bit brighter.

Early in this economic recovery, investors leaped into emerging-market stocks and bonds as those economies and markets promised faster growth than in the developed world. There was plenty of money to do so as the U.S. Federal Reserve and other central banks flooded the world with liquidity.

In 2009 and 2010, those economies grew much faster than the United States. As foreign direct investment surged, investors who'd bought into emerging-market stocks were rewarded with much higher returns than were available in the broader market.

Story continues below advertisement

That trend, which began to falter at the beginning of last year, is now being reversed. In the week ended Nov. 16, a record $6.6-billion (U.S.) flowed out of emerging-market debt, according to data from EPFT Global, halting 18 consecutive weeks of inflows. In the second full week of November, exchange-traded funds that buy emerging-market securities saw withdrawals around the world worth $1.4-billion. While the surging U.S. dollar would seem to help emerging markets by boosting their exports, that is more than offset by other negatives, such as rising interest rates that are sucking money out of those economies.

Mr. Trump's "America First" protectionist plans may soon add to the pain. He has promised to abandon the tariff-cutting Trans-Pacific Partnership trade agreement between the United States and most Asian countries. He may force changes in the North American free-trade agreement that will hurt the United States' southern neighbour, Mexico. On the campaign trail, he branded China as a currency manipulator and talked of a 45-per-cent duty on Chinese imports. Even though he's toned down that rhetoric, investors are wary.

But not all emerging markets are equally vulnerable. Those that can weather a protectionist storm and higher interest rates are those with current-account surpluses, including the Philippines, South Korea, Malaysia, Taiwan, China and Poland. Their foreign-currency reserves provide the money to fund any outflows of hot money without provoking a collapse in their own currencies. China's reserves, for example, are down 22 per cent from their mid-2014 peak.

The losers are those emerging markets without that crucial buffer – Brazil, India, South Africa, Argentina, Egypt, Indonesia, Mexico and Turkey. They have current-account deficits, so are importing capital to fill the gaps and have to take stringent measures as foreign money flees. Their foreign-exchange reserves tend to be slim, about half the size of those of the first group in relation to gross domestic product.

In contrast to the healthier emerging-market economies, the deficit countries have currencies that have been falling against the U.S. dollar for the past five or six years, spectacularly so in chaotic Argentina. Economic growth among the deficit economies has also been weak except for India, which may in time join the healthy group if Prime Minister Narendra Modi succeeds in curbing corruption, eliminating economy-distorting subsidies and reducing business-retarding regulations.

With inefficient economies, slow growth and more entrenched corruption, the deficit economies also have much higher inflation levels than the surplus economies. And, with inflation problems and pressure to support their currencies, all except India have seen central-bank rate hikes in recent years, in contrast to rate declines in the healthier group.

All emerging-market leaders aim, of course, to spur economic growth and curtail foreign capital flight while controlling political and social unrest and avoiding the effects of increased global protectionism.

Story continues below advertisement

The International Monetary Fund estimates that a surge in global protectionism could reduce global GDP by more than 1.5 per cent over the next several years. That would make the job even harder and helps explain why emerging markets are out of favour. But investors would be wise to differentiate between those countries best able to weather the storm, and those whose participation in the good times was less justified.

Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies