Frontier markets are less sensitive to a US-China trade war
Over an interview with Asha Mehta, SVP and portfolio manager at the $80 billion Acadian Asset Management, we discussed the likely impact of a probable US-China trade war.
While declining to comment on the probability of a US-China trade war, Asha did tell Frontera that the frontier markets (FRN) (FM) are less sensitive to a potential US-China trade war, relative to the emerging markets (EEM) (VWO), if at all it does happen in some form. “China is a very important player in the frontier context, so what happens in China is, of course, relevant to frontier markets,” Asha told Frontera.
China-effect: to be more pronounced in the emerging markets
However, the China-effect in frontier markets isn’t as pronounced as you see in the emerging markets. In emerging markets, you see immense sensitivity to China. If China (FXI) (ASHR) (YINN) slows down, emerging markets broadly would slow down. However, a China slowdown isn’t a definite signal for a frontier market slump.
“The thing distinct about frontier markets is their idiosyncrasy. What drives these markets is generally very country-specific not macro dominated. So, for the frontier markets, the dependency (measurable as correlation) on one particular market is less as compared to the emerging markets,” said Asha.
Global themes: more muted for the frontier markets
“Global themes such as; a potential US-China trade war, China growth slowdown, the direction of commodity prices, US rates; that are quite significant for the emerging markets are typically more muted for the frontier markets,” Asha told Frontera.