This article was written by Ziad Daoud. It appeared first on the Bloomberg Terminal.
Some tailwinds have developed for emerging markets. The squeeze on energy importers is easing thanks to abundant oil supplies. De-dollarization can create demand for currencies like the Chinese yuan and the Singaporean dollar. And a return to orthodoxy will benefit Turkey in the long term, even if it induces some short-term pain.
Our big takeaways from last month:
1. Oil abundance. Our decomposition of crude price drivers shows the $21 price reduction since November has been solely due to excess supply. The likely sources are Russia, Venezuela and Iran. Moscow’s non-compliance with OPEC+ cuts could test the cohesion within the group.
2. De-dollarization. The dollar share of international reserves fell to 58% in 2022 from 73% in 2001. Sanctions, the shrinking US share in global GDP and political threats of a US default will probably accelerate this trend. The beneficiaries could be China – witness the recent ‘oil for yuan’ deal between Pakistan and Russia – and safe havens like Singapore.
3. Turkey’s pivot. The appointment of a new finance minister and central bank governor suggests a turn to more rational policies since the May elections. A 6.5 percentage point interest-rate hike in June swiftly followed. But markets remain unimpressed — the lira is still down 28% in 2023, because investors expected a larger rate increase.
