A simple thread to understand relationship between US Dollar and Emerging Markets.

The relationship between the performance of Emerging Market stocks and the US Dollar is one of the tightest macro relationships that exists in investing.

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The weekly return correlation between US Dollar and MSCI Emerging Market Index is -0.70 over last 10 years. Which means when US Dollar weakens, Emerging Market stocks rally and vice versa.

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As seen in this chart, the MSCI EM Index and the MSCI World Index ratio and the US Dollar Index are negatively-correlated.

When US Dollar weakens, EM index outperform World Index and when US Dollar strengthens EM index underperform World index.

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From 1995 to 2000, the USD appreciated over 30%, while the MSCI EM Index underperformed the MSCI World Index by over 15% annualised.

Then from 2001 to 2010, the U.S. dollar depreciated over 18% while the MSCI EM Index outperformed the MSCI World Index by 14% annualised.

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Then from 2011 to 2020, the U.S. dollar appreciated over 30%, while the MSCI EM Index underperformed the MSCI World Index by 7% annualized.

Overall, from 1995 to 2020, this relationship has a correlation of -0.35.

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Let's understand why weak US Dollar is good for Emerging Market stocks?

A weaker dollar allows Emerging Market countries more freedom to provide fiscal stimulus without fearing negative implications for their own economies.

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For instance, an emerging market government might feel more comfortable with fiscal easing if its currency is rising, dampening the potential for an inflationary shock.

As case with India, government will be more comfortable to push fiscal stimulus now when INR is stable.

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US Dollar is also a safe heaven during times of crisis. However, when USD starts depreciating, investors often flock towards risky assets for better returns.

Emerging markets are a natural choice as they tend to benefit from weakening dollar and grow faster than DMs.

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Weaker dollar is usually accompanied by stronger commodity prices, which boosts growth and trade surplus for some EMs who are commodities exporters.

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Weakening USD is also good for countries who heavily rely on foreign investments. When dollar weakens, investor chase high-yielding EM countries and money flows in these countries to fund local investments.

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Now let's understand why and when US Dollar depreciate ?

Easy monetary policy weakens the dollar and leads to its depreciation. Since U.S. dollar is a fiat currency, meaning that it is not backed by gold, it can be created anytime easily.

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When more money (US Dollar) is created through US Fed expanding its Balance Sheet, the law of supply and demand kicks in, making existing money (US Dollar) less valuable.

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Also, investors often chase highest yielding investments. If the Fed cuts rates, U.S. Treasuries, which are bonds, tend to follow suit and their yields fall.

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With lower rates in the U.S. investors transfer their money out of the U.S. into other countries that offer higher interest rates. The result is a weakening of the dollar versus the currencies of the higher-yielding countries, mainly Emerging Markets.

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Summing up..

Since US Fed has expanded its Balance Sheet at record speed, US Dollar may go through a weak patch.

Taking cue from multiple cycles in the past, if US Dollar continues to weaken, Emerging Market stocks may outperform.

Watch this trend closely!

15/15 End
2 funds from @EdelweissMF to play this trend.

Edelweiss Emerging Market Opportunities Equity Offshore Fund

https://t.co/ea0nbUxAmF

Edelweiss Greater China Equity Offshore Fund

https://t.co/AXEWzfKdhY

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Last week Hizbollah's finance institution Al Qard el Hasan was hacked by Spiderz. A group of people took that Data and tried to make sense out of it. Below are the findings

https://t.co/eGLqvb28o5


Loans are provided to borrowers for gold deposits or other guarantees, to the association's members and to unsecured applicants.

AQAH had a carried forward loan balance of $450 million as of December 31, 2019. This balance has been increasing at a yearly rate of 13.4%.


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THREAD: Who are the rising stars of Chinese elite politics in the central Party-State bureaucracy?

For @MacroPoloChina I analyzed last year's ministerial-level promotions to posts in Beijing

TLDR: Ties to Xi Jinping—or a Xi ally—are very helpful! (1/14)

https://t.co/kO2A0Efyq2


Seven politicians were promoted to ministerial-level positions in central Party agencies last year

All are likely to feature on the next Central Committee selected at the 2022 Party Congress

Some could make the CCP's elite 25-person Politburo (2/14)

https://t.co/kO2A0Efyq2


Likeliest for the Politburo is Meng Xiangfeng, new Executive Deputy Director of the CCP General Office

He would replace Xi ally Ding Xuexiang as CCP chief-of-staff if Ding is promoted further in 2022

Meng worked under Xi allies Cai Qi in Hangzhou and Chen Xi in Liaoning (3/14)


Less likely for the Politburo but still important is Jiang Jinquan, new Director of the CCP Policy Research Office

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Li is a political conservative who is said to be quite close with Xi, even drafting his 2014 speech on culture and art (5/14)

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