Emerging-market stocks and currencies pressured by rising oil prices

On April 22, the MSCI index of emerging-market currencies dropped 0.3%, its worst single-day performance in more than a week. The driver was a familiar one: stalled diplomatic talks between the US and Iran, paired with heightened military activity near the Strait of Hormuz, pushed oil prices back above $100 per barrel. The mechanics of the pain Countries that import most of their energy, a category that covers a large share of Eastern Europe, South and Southeast Asia, and sub-Saharan Africa, get hit from two directions at once when crude rallies. Energy import bills climb, widening trade deficits. Those deficits put downward pressure on local currencies. A weaker currency then makes those same energy imports even more expensive in local terms. Eastern European currencies led the decline on April 22, reflecting the region’s particular vulnerability to energy price shocks. The other side of the trade The Chilean peso and the Colombian peso each gained roughly 0.6% on April 22. Chile’s situation is slightly more nuanced because copper prices, which also rose, play a larger role in its export revenues than crude oil does. Colombia, a meaningful oil exporter, benefited more directly fro...