Emerging Markets - China spreading its influence

Asian economic and trade conditions are looking good, with China progressively replacing the US as the dominant force in the region.
Reduced dependence on the US market makes Asian exporters less vulnerable to any protectionist measures that could be taken by the Trump administration.
Downside risks to the Russian economy have subsided, but the same cannot be said about Brazilian politics.

Asian trade patterns have changed dramatically since the 1990s, with the US no longer the dominant force. Intra-regional trade has been lifted by buoyant domestic demand and Chinese economic stability. Their now reduced dependence on the US market makes Asian exporters less vulnerable to any adverse trade protectionist policies that the Trump administration might implement.

Just as the post-war Marshall Plan was arguably a way to drive US dollar dominance, China’s bilateral help and arms-length financing of partner emerging countries via the key “One Belt, One Road” initiative (more specifically the Asian Infrastructure Investment Bank and Silk Road Fund) could be a means to further internationalise its currency. Achieving something akin to the Marshall plan will be a huge task for China, but the window of opportunity does exist, at least for Eurasian countries that have been plagued by lack of funding and interest.

Outside of Asia, Russia has regained considerable credibility with respect to its monetary and fiscal policies, which should lessen the country‘s vulnerability to foreign outflows. The current account has remained in surplus, the budget deficit is in check and the central bank introduced a freely floating currency in late 2014. But although the economy seems to have seen the worst of the downturn, it does remain vulnerable. Despite efforts to diversify its income sources, Russia still relies mainly on energy goods for its economic prosperity, as evidenced by the persistently strong correlation between oil prices and the Russian real GDP.

As for Brazil, while the economic turnaround has been impressive on many counts, the path out of political quagmire is far from clear or easy. Brazil’s political issues are deep and unlikely to be solved by an interim government of questionable legitimacy.
 

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