What's going on?

�Emerging market� (EM) stocks have had a really rough July with an index of EM stocks down more than 7% in US dollar terms. The volatility in China�s stock market, steep falls in commodity prices and the strengthening US dollar have combined to cause the weakness.

What does this mean?

China�s economic growth is slowing, which decreases its trade with other countries and, in turn, slows the economies of its trading partners. Furthermore, many EM economies rely on selling commodities � but with commodity prices at multi-year lows, they make less of a positive�impact.   Finally, the US dollar strengthened a lot in July. This makes it more difficult for EM countries and companies that have borrowed money in US dollars (of which there are many) because paying it back becomes, effectively, more expensive for them. Investors are very nervous over the high level of indebtedness of many EM countries.

Why should I care?

1. Owning EM stocks as part of a diversified portfolio is probably a good idea, but doing so would have certainly dampened your returns this month.
2. If some of the factors noted subside and/or improve, returns for EM stocks could be positive in both the short and long term.