EM currencies

By Jonathan Fenby, Trusted Sources

As reform has become the principal touchstone for emerging markets (EM), the importance of the political and personal agendas of the leaders in each of the seven countries primarily concerned has emerged as a major factor. This applies as much on the positive side – India, China, Indonesia and Mexico – as on the negative slate – Turkey and South Africa. For its part, Brazil is on a knife edge in policy terms.

We would score them as follows on a scale of +2 to -2 taking into account what they have achieved, what they have committed themselves to and the impact of political, economic and social factors on prospects for structural change needed to achieve sustainable growth. Read more

Portfolio flows into emerging markets (EM) suffered their sharpest slump in December since the 2013 “taper tantrum” as the Russian currency crisis and sliding oil prices intensified risk aversion among both equity and debt investors, according to estimates by the Institute of International Finance (IIF), a global association of financial institutions.

The IIF’s EM Portfolio Flows Tracker, released on Tuesday, estimated total outflows from EM at $11.5bn during the month, with flows out of debt accounting for $7.8bn and flows out of equities reaching $3.7bn. The only EM area to register net inflows was emerging Asia, following foreign buying of Indian bonds and equity issuance throughout the region (see chart). Read more

Pity the poor Mexican peso. Despite the view in the market that Latin America’s second biggest economy is set to outperform its emerging market peers in 2014, the currency has been taking it to the chin since the start of the year. Read more

Previously, beyondbrics looked at stock exchange winners and losers of 2013. Now it’s the turn of the EM currencies.

Which currencies felt the full force of the 2013 sell-off, and which survived unscathed? Read more

As Christmas approaches in London, flutter-hungry bookies start taking bets on the likelihood of snowfall.

Are EM currency falls this month a safer bet?

Benoit Anne of Société Générale has crunched the numbers and found that EM currencies tend to lose value in December, to a greater extent than the yearly average. Read more

After Unilever, it was the turn of Casino, the French retailer, to feel the sting of emerging market currency fluctuations on Monday.

The company, which generates two-thirds of its trading profit from Latin America and Asia, said while third quarter like-for-like sales from these markets grew 12.5 per cent, the weakening of currencies such as the Brazilian real and the Argentine peso this summer meant sales, when converted into euros, actually fell 6.2 per cent during the period.

The currency headwinds meant overall group sales ended the quarter flat at €11.8bn compared to the same period last year. This despite marked improvement in its key French market. Read more

Emerging market economies with current account deficits have had little to smile about since Ben Bernanke first mentioned ‘tapering’ of QE in May.

This chart (after the break) from Aberdeen Asset Management shows the strong correlation between current accounts and currency strength. Countries such as Indonesia, India, Turkey, South Africa and Brazil, running large deficits, are being punished with drastically weakening currencies. Read more

A roulette wheelEmerging market currencies that were the hardest hit by the summer’s sell-off rallied on Monday after Lawrence Summers pulled out of the race for the Federal Reserve, raising hopes that easy monetary policy in the US will continue for longer.

The South Africa rand climbed 1.3 per cent to R9.807; the Turkish lira gained 1.4 per cent to TL2.02600 and the Indian rupee – which hit a succession of record lows earlier in August – rose 1 per cent to Rs62.83, a near one-month high. Read more

As the G20 kicks off in St Petersburg, one of its dominant themes is a rising swell of complaints over the effects of US monetary policy.

Simply put: the US tapers quantitative easing, and the days of easy money for emerging markets are over – and currencies get hit. So who’s complaining, and how bad has it been? Read more

From stocks to bonds to currencies, whichever way you cut it, it’s been a quarter to forget for emerging markets. Having soared to new heights at the start of the year as money gushed in, the asset class suffered a rude awakening in June after the US Federal Reserve announced that it could soon start scaling back its massive bond programme. Here’s a review of the quarter in a couple of charts. Read more

Here’s a question to wow them with at the next pub quiz: what’s the best-performing EM currency over the past six weeks?

Answer – probably, Argentina’s “blue” peso – if you were to look at the widely-watched black-market dollar rate from the other way around. Argentina’s blue rate is the name for the illegal exchange rate that is widely-followed now that Argentina’s official peso has become a virtually unconvertible currency. Read more

Emerging market assets suffered another bout of sell-off on Wednesday after the US Federal Reserve said it could start reducing the pace of its bond buying programme this year and end it altogether around the middle of next year.

The MSCI Emerging Markets Index fell 1.3 per cent to close at its lowest level since last September. Read more

The coming end of QE has loomed very large this month, not least in emerging markets. Too large, says Fred Neumann of HSBC, who argues that while the gradual reduction of the US Federal Reserve’s huge monetary easing is important, it will be mitigated by the rush of new cash coming from elsewhere, principally the Bank of Japan. Read more

It’s often wishful thinking, but there comes a point in a mass sell-off when investors decide enough is enough. And so it was on Wednesday, with a near-1 per cent bounce in the Indian rupee against the US dollar, after weeks in which it had been in the forefront of a global plunge in emerging markets. Read more

It’s been a bad few weeks for EM currencies. The South African rand and the Indian rupee have taken a particular hammering, helped along by violent mining-industry unrest in the former and apparent policy paralysis in the latter. The Turkish lira, too, has been badly shaken by the past fortnight of violent protest.

None of those currencies, though, would have fared quite as badly were it not for the fear that the Fed’s quantitative easing programme may be coming to an end. And nowhere is the undiluted end-of-QE effect clearer than in Latin America. Read more

Oh the cruel irony. After lobbying for a weaker currency for the past three years, Brazil’s government would now give anything to strengthen the real, it seems.

The central bank sold a whopping $2.1bn of currency swaps on Monday to prop up the real against the dollar after it hit its weakest intraday level since May 2009. Read more

Brazilian real dropped as low as R$2.1496 per USD on Friday – its weakest level since May 2009.

Let’s hope all those Brazilian companies that have been issuing dollar bonds have a currency hedge out. Read more

By George Hoguet, Global Investment Strategist, State Street Global Advisors

The achievements of the recent Brics summit deserve another look.

Global investors should welcome the proposed $100bn Contingent Reserve Arrangement and the planned Development Bank backed last month by the leaders of Brazil, Russia, India, China and South Africa. The Brics shareholders have yet to work out the details of these institutions, but the political resolve is clearly in place. Read more

Asia’s emerging markets took the Bank of Japan’s latest radical monetary loosening in their stride, with fairly muted responses to governor Haruhiko Kuroda’s dramatic announcement.

While the Japanese stock market soared 2.2 per cent and the yen dropped 2.7 per cent against the dollar, the reaction elsewhere in east Asia was less than overwhelming. But this could change, as the implications sink in. Read more

Emerging stocks are heading for their biggest first-quarter drop since 2008, weighed down by slowing economic growth, worries about profits, concerns about the Chinese property market and the general unease about the euro crisis.

With some EM currencies also suffering as the US dollar has surged ahead since the start of the year, it hasn’t been a great three months for fixed income either. Read more