ft/cms/s/0/450c12e6-88f7-11e3-bb5f-00144feab7de.html Last updated: January 29, 2014 7:55 pm Sell-off in EM currencies continues By Jonathan Wheatley and Delphine Strauss The sell-off in emerging market currencies intensified on Wednesday despite a string of surprise rate rises by central banks as investors warned policy makers would need to take tougher action to restore confidence. The rally that followed the dramatic midnight rate hikes by Turkey’s central bank fizzled out as analysts said monetary policy had not been tightened as much as initially thought. South Africa’s central bank also shocked markets by raising rates – but the rand continued to plunge after policy makers presented it as a one-off move that would not change its overall stance on inflation. Turkey’s lira swung sharply and ended the day at TL2.2445 to the dollar, little changed from the level it reached before the rate rise. The South African rand fell around 2 per cent to R11.29 against the dollar in volatile trade, despite the 50 basis point increase in the central bank’s base rate to 5.5 per cent. Investors signalled they wanted to see more aggressive and sustained action from central banks before they regained their appetite for emerging markets assets. Despite concerns over the impact of a Chinese slowdown while the US Federal Reserve is scaling back its stimulus, real interest rates remain negative in many emerging markets. “It is possible that investors fear that the emerging markets central banks have fired their last shot, and will be unable to follow through with more tightening,” wrote Steve Englander, strategist at Citibank. “However much the Fed insists that other countries are not its table, the evidence of the last two days is that the Fed is the only waiter in the room.” Other currencies suffering sharp falls included the Russian rouble, down 1.2 per cent at Rbs35.20 to the dollar, and the Hungarian forint, down 1.5 per cent at Ft225.66 to the dollar. The sell-off also hit currencies seen as more robust, with the Mexican peso down 0.8 per cent and the Polish zloty down 0.7 per cent. Analysts said that contagion had now spread across emerging markets as local companies sought to buy dollars and investors in local currency bonds rushed to hedge currency risk. Hedge funds were also helping to drive prices down as were any remaining retail investors many of whom fled emerging markets in last year’s sell-off. “For the time being, you wouldn’t want to stand in front of a freight train,” said Christian Lawrence, strategist at Rabobank. Institutional investors – who did not abandon emerging markets last year despite a big sell-off by retail investors – may also be starting to crack. Bill Gross of Pimco, the world’s biggest bond investor, tweeted: “Turkey & South Africa flunk currency test – don’t wait around to see who’s next. De-risk, move to Treasuries.” JB Slear 866-443-0868 Ext 104 817-717-5489 Fax: 817-764-2537 FortWealth Dont risk what you cannot afford to lose.... There is significant risk involved in trading futures and/or options on futures. Futures and/or options of futures trading may not be suitable for all investors. Investors should consider these risks and evaluate their suitability based on their financial conditions. Past performance is not indicative of future results.
Posted on: Wed, 29 Jan 2014 23:18:11 +0000
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