A weaker U.S. dollar is steering more international investors toward emerging-market assets and is raising the local-currency value of commodity export receipts for economies where trade is largely priced in dollars. Finnfund economist Tangeni Shatiwa said a weaker dollar can also make servicing dollar-denominated debt more affordable for borrowers that still hold substantial external obligations.
Shatiwa said emerging-market assets have risen sharply as investors diversify portfolios away from the United States, and he cited the MSCI Emerging Markets Index climbing 47% over the past year. He said the MSCI benchmark tracking developed markets rose 24% over the same period.
Shatiwa said several emerging-market currencies, including the Ghanaian cedi and the South African rand, have strengthened by more than 10% against the dollar. He said movements in the dollar have historically been a key driver of capital flows to emerging markets since the 1970s, with periods of pronounced dollar weakness coinciding with outperformance in emerging-market investments.
Shatiwa said emerging-market valuations remain lower than U.S. equities, with the MSCI Emerging Markets Index trading at roughly a 40% discount relative to the S&P 500. He said the MSCI index tracking large emerging-market companies returned to its 2007 peak in 2021 and then fell by more than 40% in 2022–2023.
