USD Strength, Market Uncertainty Have Been Weighing On EM Equities

• The rapid deterioration in the macro outlook following the Ukraine invasion and the surge in market uncertainty amid stagflation fears have been weighing on risky assets since the start of the year.
• Equity markets are all down this year, with EM equities experiencing the worst drawdown, down over 20% since the beginning of January.
  • USD strength, China slowdown, geopolitical uncertainty have all been strong factors behind EM equity weakness in 2022.
• Interestingly, we previously saw that China equities have not been performing that ‘poorly’ given the sharp downward revisions in growth expectations in recent months due to the strict zero-Covid policy.
• The Hang Seng Index is down slightly over 10% while US equities are down 15% and Asia (ex- Japan) equities are down nearly 20%.
• However, it is important to note that the bear market in China equities started in February 2021, which coincides with the peak in the economic activity (electricity consumption, Li Keqiang index…).
• Latam equities have experienced the smallest drawdown this year as the strong momentum on Latam FX in Q1 generated a rally in local equity markets.
• If we look at the peak-to-trough performance, Latam equities are down nearly 30% since the beginning of Q2 this year.

Source: Bloomberg/MNI