Should we worry about US exposure to emerging markets?

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08/16/2018 | 03:48 pm
Goldman Sachs seems to think so. On August 13, it warned about US companies' emerging market exposure, in the context of the ongoing crisis in Turkey. However, a new report from Wells Fargo states that the risk to the US economy is rather limited.
In a note, Goldman Sachs said that only 47 percent of companies in the emerging market stock basket posted positive earnings surprises.

This is cause for concern among investors, especially in the current environment marred by a growing crisis in Turkey and a trade war between the US and China.

Emerging markets have tumbled since the Turkish lira started its downward spiral, following Donald Trump’s infamous tweet posted on August 10. As a result, the U.S. dollar strengthened and investors flew to the safety of developed markets.

But just how exposed is the U.S. economy to emerging economies? Should we worry about the repercussions for the country? In a new report, Wells Faro sought to reassure investors, stating that while the exposure of the U.S. economy to the developing world has increased over the past two decades, the U.S. expansion likely would not be derailed by financial crises in those economies.

The financial group notes that exports of total goods and services are equivalent to only 14 percent of US GDP and that exposure of American banks to developing economies represents only 5 percent of their financial assets at present.

“Emerging market economies are generally better able to service their external debt that they were 20 years ago. Consequently, we do not think that a wave of Turkey-like financial crises will sweep through EM economies as they did in 1997-1998”, the report concluded.

Romain Fournier
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