Dollar strength raises emerging market asset risks

Significance

Russia and Ukraine are major commodity suppliers and the price shocks that this is causing are fuelling inflation and adding to global growth concerns. Investors’ tolerance for risk has fallen since the invasion: EM bond funds have had their worst start to a year since 2014.

Impacts

• Investors are betting on aggressive US rate hikes: Citigroup sees 50-basis-point rate hikes at every Fed meeting from May to September.
• Before the Fed began raising rates, many EM economies had already tightened policy aggressively; further tightening will dampen activity.
• The MSCI World Equities Index has gained nearly 8% since March 14, partly due to Federal Reserve confidence in the strong US economy.