Dollar bonds from some of the world’s weakest economies have emerged as the bright spot in what’s otherwise been yet another lackluster year for emerging-market assets. While many developing-world assets ended the year with gains, their returns pale in comparison to those on Wall Street. Among emerging currencies tracked by Bloomberg, only three have managed to strengthen in the face of a rising US dollar.
The Brazilian real sank 21 percent, while the Mexican peso posted its worst year since the 2008 global financial crisis. An MSCI Inc. index of EM stocks has notched a 5-percent return—its second-straight year of gains—but that trails a 17-percent gain on global equities and 20 percent-plus on the S&P 500 Index. In fact, developing-nation equities trade near their lowest-ever level relative to the S&P 500 since the late 1980s. Emerging-market equities and local-currency bonds “underperform their US peers by default whenever the US dollar strengthens,” said Simon Quijano-Evans, chief strategist at Gramercy Ltd. in London. He said the asset class’s performance next year hinges now on President-elect Donald Trump’s policies, “and what they mean for the US dollar.” Equities outperformed in Argentina, Pakistan, Sri Lanka and Kenya, while China’s stock index rose almost 15 percent, its best annual advance since 2020, thanks to Beijing’s stimulus efforts
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