Chart of the week: who is winning the currency wars?

Devaluations, slowdowns, currency wars – 2011 is another tumultuous year for markets. But which emerging markets stand to gain most from a currency decline, particulary when it comes to exports?

This week the chart (below the break) looks at 12 countries and how they compare in terms of currency movement (against the US dollar), dependency on exports (as a percentage of GDP) and volume of exports.

Any country to the left of the red dotted line has seen an overall devaluation of its currency this year – making exports cheaper. Any country to the right has had currency appreciation – making exports more expensive. Countries at the top of the chart have a high level of exports driving their economy. And the bubble size is the value of those exports (measured in US dollars). The colours identify countries by region (Asia in light red, eastern Europe in blue, LatAm in green). So what can we see?

Source: IMF, Thomson Reuters Datastream

Well, Malaysia has a high dependency on exports – over 80 per cent. But its currency, the ringgit, has devalued just 3.4 per cent against the dollar – a boost for exporters, but not enough to fuel any export boom.

At the other end of the devalued scale, the Turkish lira is down 17.5 per cent, but exports are low at only 16.6 per cent of GDP. The impact of the currency move may help exports and the economy, but it will hurt too: imported goods will be more expensive for Turkish customers.

Of the Bric nations, India and Brazil have remarkably similar numbers on all three measures: currency at 9.4 per cent down, exports below 15 per cent of GDP and value of exports between $200bn and $230bn. Russia has a higher proportion and value of exports, but the rouble hasn’t traded down as far.

China though, may surprise: the value of exports is the largest of the selected countries, but exports are just over a quarter of GDP (26.9 per cent). China’s economy is more domestically-driven than the “Made in China” tag would have us believe. Although the appreciation of the renminbi will hurt exports, the bottom line impact on GDP may be as little as 1 per cent.

Overall, the country that looks best placed to gain is South Korea – just. The won may be down only 5.5 per cent, but exports are over 45 per cent of GDP.

For clarity, here are the numbers:

Currency change vs US$ since 31/12/10 (%) Merchandise exports ($bn, 2010) Exports as a % of GDP
Argentina -5.6 68.1 18.4
Brazil -9.4 201.9 9.7
China 3.4 1,581.4 26.9
Hungary -6.6 93.3 71.5
India -9.4 225.6 13.1
Indonesia 1.2 158.1 22.4
Malaysia -3.4 197.0 82.8
Mexico -8.9 298.5 28.9
Poland -9.7 162.3 34.6
Russia -6.1 400.1 27.0
S Korea -5.5 464.3 45.8
Turkey -17.5 120.9 16.5

Related reading:
Chart of the week, beyondbrics
China: It’s the (domestic) economy, stupid, beyondbrics
beyondbrics currencies file