The Impact of US Growth and a Strong US Dollar on Emerging Markets


US unemployment has dropped from 10% in late 2009 to 5.5% in February 2015, and the US Dollar is on a record growth streak.

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While that is good news for US firms and US investors looking to acquire ex-US, it exposes major weaknesses in emerging markets across Latin America and Asia.  On top of that, the Fed might decide to start raising interest rates should the US economy keep growing steadily.

Latin America might get hit even harder, given that the above pressures are on top of political instability and low domestic growth. Thus structural reforms are becoming more important. Certain parts of Asia, including India, have a leg up and are further along down the path of reforms and infrastructure investments (many of these countries also still have room to lower interest rates if necessary).

Probably now is the best time to act according to Warren Buffett’s motto: be greedy when others are fearful, especially for firms and investors that see EM as a core part of their investment portfolio and/or business.

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