The Straits Times Index (SGX: ^STI) is down around 6% year to date. Tokyo’s Nikkei 225 is down 5.5% year to date. The Shanghai Composite Index is down 19% year to date. There’s more.
The Hang Seng Index is down 11% year to date, while the Dow Jones Industrial Index has virtually given up all its January gains to be unchanged since the start of the year.
On the currency front, the Singapore dollar is down 4% against the US dollar year to date. The Indian rupee is down 9% against the US dollar and the Indonesian rupiah is down 7% against the US dollar, since 1 January.
The Philippines peso is down 7% against the US dollar, while the Chinese yuan is down 6% against the US dollar. The Turkish lira is reeling on the ropes, down 45% against the US dollar this year.
In times like this, it is natural to look around for someone to blame for the woeful performance of stock markets and currencies around the world….
…. An obvious candidate is The White House’s crackpot idea to impose import tariffs on all and sundry.
America’s protectionist measures against China, the Eurozone, Mexico and Canada, and sanctions against Iran certainly hasn’t helped. But that is not the main reason for the market unease.
Instead, look to the Fed’s decision to normalise interest rates. It has disrupted emerging market currencies and the companies that operate in those developing economies.
The harsh reality is that the total debt of emerging-market companies is US$2.8 trillion. That is eight times more than during the Asian Financial Crisis of 1997. It is double the debt level during the Great Financial Crisis of 2008.
Those debts need to be serviced and repaid at some point in time. And with the dollar on the rise it has become costlier to do so.
But many emerging markets, especially those here in South East Asia, are in much better financial shape than in 1997 and 2008. What’s more, Indonesia is not Turkey. Nor are the Philippines, Thailand, Malaysia or Taiwan.
So, Turkey’s problems are specific to Turkey. Its economy has been the victim of high inflation and high unemployment, and the central bank’s reluctance to hike rates.
As investors, we need to look beyond the silly season and focus on the significant numbers, instead.
Global growth is still intact, which could bode well for corporate profits. Valuations are not expensive, and interest rates are still relatively low. So, there is nothing to fear but fear itself.
A version of this article first appeared in Stock Advisor Gold and Stock Advisor Singapore.
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