Idiosyncratic factors add to challenging environment for Emerging Markets

Commodity prices are still under pressure, with under performance rotating from metals to energy over the past week. The macroeconomic environment for EM markets remains harsh. Just as investors were taking comfort from the stabilization in China's June IP and FAI data, the unexpected plunge in the "flash" PMI raised worries that the Chinese economy has yet to find solid footing. 

"A-share volatility early this week sent tremors across global markets again, even though we believe the impact of China's equity market volatility on the real economy is not too significant, according to Barclays.

Idiosyncratic domestic factors driving weakness in local market have also increased, such as the rating outlook downgrade in Brazil, rising geopolitical tensions around Turkey and a worsening drought in Thailand. Amid growing challenges, the Fed signaled that it is inching closer to a rate hike, pushing USD higher versus Emerging Markets' FX across the board, says Barclays.