January saw emerging market currencies take a beating. Investors have been pulling out of emerging market stock and bond funds. And now some are worried that this along with deterioration in those economies will do serious damage in the U.S. stock market and economy.
“We don’t buy this bearish argument. We don’t expect much of a hit to U.S. earnings owing to current difficulties in the emerging markets,” writes Joseph P. Quinlan, chief market strategist at U.S. Trust.
Quinlan has two tables that show us just why he isn’t worried. The first shows that of the top 20 export markets for the U.S. eleven are developing nations “but only two — Brazil (ranked 7th) and India (18th) — are of any significance when it comes to the current problems in the emerging markets.” The other troubled emerging markets, Venezuela, Turkey, Argentina, and South Africa account for a much smaller percentage of its total exports.
Moreover, a look at foreign affiliate sales — U.S. firms delivering goods and services through foreign affiliates — shows that only seven emerging markets make the list when we look at the top 20 markets for U.S. foreign affiliate sales. And Quinlan writes that this is a “much better gauge than exports.”
When looked at this way, of the fragile five, only Brazil features in the top 20.
“The emerging markets spoiled January for investors, but it’s far too early to write off the entire year and too soon to give up on our tactical bias toward U.S. equities,” Quinlan writes.