2015 the year of the dollar's reign, emerging market pain
Reuters, , Friday 18 Dec 2015


The dollar reigned supreme in 2015, having been pumped up all year by expectations of a rate rise the Federal Reserve finally delivered this week, while emerging markets, oil and metals have been the big losers.

The dollar index, which measures the greenback against other top currencies, is up 10 percent for the year, after gaining nearly 13 percent in 2014.

More than half of the move came early in the year, when the European Central Bank was preparing to start a money-printing programme. Four 4 percent has come since September when the Fed started clearly signalling it was finally going to hike.

At the other end of the spectrum, oil is facing a 35 percent drop for the year. Having plunged last year, too, it started sliding again in May, when worries about resource-hungry China's slowdown began to bite.

The drop really gathered pace in early October. Crude is down 17.7 percent since then and now hovers near an 11-year low as top producer Saudi Arabia continues to pump relentlessly.

It comes against a backdrop of already heavy oversupply. U.S. oil production has doubled over the past six years, and Iran will soon be feeding more into the global market as its international sanctions are lifted.

There are other big winners that have rewarded the brave. Despite sanctions over Ukraine and the slump in oil, Russian bonds are up roughly 20 percent for anyone who brought at the start of the year. Hungarian stocks have made 40 percent.

Even wilder are the so-called 'toxic trio'. Ukraine's bonds have returned almost 50 percent this year, making them the world's best performers. Venezuela and Argentina are number two and three having chalked up gains of 28 and 24 percent respectively.

Back among the usual safer markets, Japan's Nikkei was next best after the dollar. The stocks index is up 7.4 percent for the year, in front of 4.1 percent posted by Shanghai-A shares, which had been up as much as 50 percent up until June.

The way they melted down as it became clear China's giant economy was slowing faster than many anticipated was one of the big stories of the year. It was compounded as Beijing caught markets off-guard with an impromptu 3 percent devaluation of the yuan in August.

Wall Street's S&P 500 has had its worst year since the height of the euro zone crisis in 2011, returning 2.8 percent when dividends are included. Europe's FTSEurofirst has done a bit better with a 4.5 percent rise.

MSCI's 46-country All World index, however, is down 4 percent, which will end three straight years of gains.

Emerging markets are squarely to blame. MSCI's main EM index has slumped 17 percent as the near perfect storm of lacklustre global growth, slumping commodities, a strong dollar and some ugly politics have hammered countries from Brazil and South Africa to Turkey and Malaysia.

Their currencies have taken a battering, too. Brazil's real is down 30 percent, South Africa's rand is down almost 25 percent, Turkey's lira 20 percent, and Russia's rouble and Malaysia's ringgit down 18 percent to name just a few.

Concerns about Chinese demand has been a driver, particularly for commodity economies. It's not just oil - copper prices are down 27.7 percent for the year, the biggest decline since the 2007-2008 financial crisis.

The Thomson Reuters/Core Commodity CRB index, which measures 19 commodities, is down 25.3 percent and stuck at a 13-year low.

One of the other 2015 surprises has been the outperformance of U.S. bonds compared with their European equivalents. It has come despite the European Central Bank's programme to buy more than 1 trillion euros ($1.08 trillion) of bonds, the Fed's decision to halt its own bond purchases and the increase in U.S. interest rates this week.

German 10-year bunds and Italian government bonds are down 9.7 percent and 5.8 percent in dollar terms respectively. U.S. 10-year treasuries have made 0.9 percent.

While actual Bund yields are marginally higher when they started the year, much of the underperformance in dollar terms is due to the 10 percent drop in the value of the euro as Super Mario Draghi has ramped up the printing presses

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