http://www.bloomberg.com/news/2012-06-24/brics-biggest-currency-depreciation-since-1998-to-worsen.html
BRICs Biggest Currency Depreciation Since 1998 to Worsen
By Ye Xie and Michael Patterson - Jun 25, 2012 3:20 AM PT
The largest emerging markets, whose economies grew more than four-fold in the past decade, are making losers out of everyone from central bankers to Procter & Gamble Co. (PG) as their currencies post the biggest declines since at least 1998.
For the first time in 13 years, the real, ruble and rupee are weakening the most among developing-nation currencies, while the yuan has depreciated more than in any other period since its 1994 devaluation. P&G, the world’s largest consumer-goods maker, cut its profit forecast for the second time in two months last week in part because of currency losses. Brazil’s Fibria Celulose SA (FIBR3), the biggest pulp producer, asked banks to loosen restrictions on dollar loans as the real hit a three-year low.
Tis a very difficult market. Currency a problem for P&G wrong hedges creates less profit on the balance sheet.
Investors are fleeing the four biggest emerging markets, known as the BRICs, after Brazil’s consumer default rate rose to the highest level since 2009, prices for Russian oil exports fell to an 18-month low, India’s budget deficit widened and Chinese home prices slumped. Investors are bracing for more losses as economic growth slows.
In search of profit growth projections have no allocation for a lull. Budget deficits imply inflation where over heated housing cooling off implies sanity
“I am quite bearish,” Stephen Jen, a managing partner at hedge fund SLJ Macro Partners LLP and a former economist at the International Monetary Fund, said in a phone interview from London. “When the global economy and capital flow slow down, it’s going to expose a lot of problems in these countries and make people stop and ask questions. A run on the currency could be particularly ugly.”
Back to where is the asset and what is asset less currency worth?
Ruble’s Retreat Currencies from Brazil, Russia and India will probably decline at least 15 percent further by year-end, said Jen, the former head of global currency research at Morgan Stanley.
Brazil’s real lost 12 percent this quarter through June 22, the biggest drop among the 31 most-actively traded currencies tracked by Bloomberg. The 11.5 percent depreciation in the ruble and 10 percent drop in the rupee were almost twice the retreat in the euro. China’s yuan, which was kept unchanged during the global financial crisis in 2008 and 2009, fell 1.2 percent since March after the government widened the amount the currency is allowed to fluctuate each day.
The ruble sank 2.4 percent last week, while the rupee fell 2.9 percent to a record low against the dollar and the real dropped 0.8 percent.
I suppose i could say to the guy who is paid in each of these currencies that you have just lost 15% of your income . You are not going to know that until your nation is fighting inflation.
A decade after Goldman Sachs Group Inc. (GS)’s Jim O’Neillcoined the term BRIC, China has become the second-largest economy while Brazil, India and Russia are among the 11 biggest worldwide. Their combined gross domestic product rose to $13.3 trillion last year from $2.8 trillion in 2002 as their share of the global economy increased to 19 percent from 8 percent, according to IMF data. Together, they control $4.4 trillion in foreign-exchange reserves, about 40 percent of the total.
>>“I am quite bearish,” Stephen Jen, a managing partner at hedge fund SLJ Macro Partners LLP and a former economist at the International Monetary Fund, said in a phone interview from London. “When the global economy and capital flow slow down, it’s going to expose a lot of problems in these countries and make people stop and ask questions. A run on the currency could be particularly ugly.” |
