Impact of Low Oil Prices on Emerging Market Investments

December 11, 2014

Many investors are concerned that the recent decline in oil prices will pose significant headwinds for investments in emerging markets debt and equity since many emerging countries are known as significant exporters of oil. In the same vein, the economic slowdown in Europe and China may translate to reduced consumption of emerging countries’ commodity exports. Our Chart of the Week examines the impact of lower oil prices on the potential returns for emerging market investments, specifically debt and equity.

While all emerging market countries are exporters in one way or another, they do not all primarily export energy or even commodities. As shown in the bottom right of this week’s chart, Venezuela and Nigeria rely heavily on energy exports and the recent drop in oil prices has been a negative trend for their sovereign and corporate debt as well as the stocks of companies in those countries. In the top right, there are more emerging countries that rely on commodity exports that are non-energy — countries that rely more on mineral and agricultural exports, such as Chile and Brazil. Finally, in the top left, there are even more emerging countries that have much more of their exports in the form of non-energy, non-commodity goods, such as Israel and China, which export mainly manufactured goods. In some cases, the fall in commodity prices is beneficial for commodity importers like India and Turkey.

Based on the chart, there does not appear to be an overreliance on oil – or commodity – exports to support the collective economies of emerging market countries. While some countries will most certainly feel the direct impact of lower oil prices, emerging market investments should not be disproportionately hurt by falling oil prices.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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