As emerging markets sink into bear territory, Oil could be the tipping point

Among the hardest hit, Turkey’s TUR ETF has tanked 50% this year, China’s FXI ETF has tumbled 12% and Indonesia’s EIDO ETF has plummeted 21%. The EEM emerging markets ETF tipped into a bear market on Wednesday (2018-08-15) after falling more than 20% from its 52-week high set in January.

“It’s oil that could be the tipping point that could send everything tumbling down,” Boris Schlossberg said Wednesday on CNBC’s “Trading Nation.” It’s “going to create a very, very onerous balance of payments problem for them going forward especially if oil goes high.”

Emerging market economies pay for oil in U.S. dollars, meaning a high greenback against the local currency makes the commodity more expensive. The dollar recently hit a 13-month high against a basket of foreign currencies.

If crude oil can get back up to $70 and the dollar continues to strengthen against foreign currencies, the pressure will increase for emerging markets, said Schlossberg, managing director of FX strategy at BK Asset Management,.

“Those factors could really combine into a perfect storm for the market and have a very bad effect on us, because as emerging markets collapse that’s going to definitely have a spillover effect into G-20 territory,” he said.

Reference
CNBC, Keris Lahiff, 2018-08-16, “As emerging markets sink into bear territory, one factor could be the tipping point”