Emerging Markets: Busting the Dollar Myth

Written by: Global Thought Leadership | March 16, 2018

Source: Bloomberg, March 15, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.


  • There’s growing concern about the fate of the U.S. dollar among investors in Emerging Market (EM) equities, largely based on to concerns that a falling dollar could hurt EM stock returns.
  • But recent history suggests that the story is more complex, and more interesting. 
  • Over the past five years, beginning in January 2013, a rising dollar has been accompanied by rising returns for EM, with one notable exception -- the 8-month period from May 2015 to. Feb 2016. After that, EM equities rose strongly, whether the dollar rose or fell.
  • A surprising detail: this held true for EM equities priced in both dollars and local currencies, both before and after the slump.
  • Explanations abound -- from a shift in the mix of industries in emerging markets away from resources toward the more dollar-driven technology sector, to positive developments in specific countries with large index weightings.
  • Whatever the explanation, it’s clear that the dollar isn’t linked to EM equities in the way many have previously believed.
  • Bottom line: it takes a knowledgeable, experienced investor to avoid falling into the trap laid by broken assumptions, and to potentially benefit from, rather than falling victim to shifts in underlying fundamental factors. And active investing is one place that this sort of judgement can potentially deployed to investors’ advantage.


Active management does not ensure gains or protect against market declines.

IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.