Emerging markets, currency and commodity woes

Developed countries are practically an oasis in the desert of the global economy. Emerging market currencies are plunging, especially Asian currencies such as the Malaysia ringgit, Indonesia rupiah, Thai baht and South Korean won, but also the currencies of commodity-intensive exporters such as Brazil, Canada, Australia and South Africa.

Certainly the U.S. Federal Reserve (Fed) is creating some of these waves as result of ending its quantitative easing program and the likelihood of a near-term interest-rate hike, but the true culprit is China. China's historic growth drove the commodity super cycle, and now its slowing growth is ending the super cycle through adverse impacts on Chinese exports, imports and investment spending. The world economy is struggling with a slowing China, but last year China was the biggest contributor to global growth, exceeding the United States.

Its economy is the second largest in the world and nearly as big as all of Europe. It has four times the population of the United States. This may be why nearly every global firm is falling over itself, seeking to drive growth by locating and building in China. China's government has clearly demonstrated that the nation is not ready to be a prime time market participant.

Recent government interventions in the stock markets have done more to destroy China's future growth prospects than a summer sell-off would ever do. MSCI recently rejected China's A shares for inclusion into its MSCI Emerging Markets index, fortunately right before the July sell-off.

"The International Monetary Fund recently rejected China's yuan currency to be included for special drawing rights (SDR) - an exclusive collection of global currencies that form a special reserve asset. The SDR currently includes the U.S. dollar, euro, yen and pound sterling. China's aggressive intervention into its markets likely delays indefinitely these two important market-opening catalysts. These are minor but important examples of why the second largest economy in the world is still considered emerging", says Voya Global.