The revised Trans-Pacific Partnership (TPP) agreement was finally signed in March - over a year after President Trump removed the United States as a signatory. We take a quick look at how much emerging markets depend on the US as a trading partner.
Eleven countries have signed the CPTPP agreement: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The agreement is an example of the type of cross-regional integration that should help reduce the risk of geopolitical uncertainty and conflict.
It would not only be a shame but also an initial economic blow for individual emerging market (EM) countries if the US became more introverted from its already low export/GDP ratio of 8% compared to, for example, Germany’s 40%.
But, the reality is that the world has changed in the past few decades, with EM countries as a group now sending almost 60% of their total exports to fellow EM countries (see the chart below).
Indeed, while the US still consumes a sizeable 16% of EM exports, that is a far cry from the post-1995 peak of 25%. Much of that has been taken up by China, which now consumes around 12% of EM exports and will likely continue to increase its share as it grows at a faster rate than most countries.
Even though EM countries overall are increasingly diversifying themselves away from depending on single trading partners, they will be disappointed to see a more introverted US trade policy. In my next post on the subject, I will be examining the individual countries, such as Mexico, which would have the most to lose.
Following the EU referendum, financial markets initially expected the worst, with the weakness of the pound the clearest indication of deteriorating sentiment. And yet, many saw the depreciation as an opportunity for the economy to rebalance away from consumer spending and towards more trade. With this in mind, how successful has the UK been?
While the recent market rally will be remembered as one of the smoothest in history, we will undoubtedly come across some bumps in the road. Seeing as we can't predict when that will be, a better question is "when should we be buying equity protection?"