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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: THE ANT who wrote (112976)	8/20/2015 9:50:46 AM
From: elmatador	Read Replies (1) \| Respond to of 217917

Currency turmoil in emerging markets escalates Roger Blitz, Elaine Moore and Patrick McGee Currency turmoil in the wake of China’s recent devaluation escalated on Thursday, triggering drastic action from central banks and sharp falls in foreign exchange rates for a host of countries, notably Russia, Kazakhstan, South Africa and Turkey. With many emerging market countries benefiting from China’s voracious demand for commodities in recent years, last week’s surprise devaluation of the renminbi has sparked broad concern that a primary engine of the global economy is spluttering. A shift towards more flexible exchange rates suggests an unintended currency war sparked by China’s devaluation, as other EM countries look at depreciation as a means to cope with slowing global growth, falling exports and sharply weaker commodity prices. “We cannot rule out further upward FX rate adjustments over the coming months, and believe their size and timing could be correlated with further RMB FX rate adjustments,” said Dmytro Bondar, technical analyst at RBS. In the latest sign of rising EM currency stress, Kazakhstan’s tenge lost more than 20 per cent of its value after the surprise announcement that the central Asian government would allow the currency to float freely. South Africa’s rand fell to its lowest level against the dollar since 2001, while Turkey’s lira and Russia’s rouble both dropped by more than 1 per cent. Analysts expect further significant devaluations with the anticipation of a US Federal Reserve rate rise hitting sentiment and pressuring the value of dollar-denominated debt sold by EM countries. The stronger dollar has spurred a flight of capital out of EM countries, and they face mounting refinancing bills as the value of the dollar rises. Ilan Solot of Brown Brothers Harriman said there was a pattern developing in EMs that points to currency exchange regime change, which includes Russia moving to a freer structure, and “there could still be a lot more adjustments still to come”. Local factors also infuse negative sentiment towards EMs with political uncertainty a major factor for Russia, Ukraine and Turkey. This week has seen violent clashes between Kurdish militias and Turkish forces and between Kiev forces and separatists in Ukraine, Russia remains mired in recession in the wake of a sharply lower oil price over the past year and economic sanctions. The combination of Russia and China facing economic problems has loomed large for Kazakhstan. The oil-dependent country has been hurt by the falling rouble and the drop in crude oil prices and metal prices. Piotr Matys, FX strategist at Rabobank, said Russia and China were major trading partners, leaving Kazakhstan “between a rock and a hard place”. The Kazakh central bank scrapped the trading band for the tenge early on Thursday, just one day after widening the currency’s trading band and allowing the tenge to weaken 4.7 per cent to 196.88 per dollar, which was its lowest since at least 1994. One US dollar now buys 257.7 tenge, taking the Kazakh currency’s year-to-date plunge to nearly 30 per cent. Kazakhstan’s move follows on the heels of Vietnam deciding on Wednesday to again expand the trading band for the dong for the second time in eight days. David Kohl, chief currency strategist at Julius Baer, said: “Most emerging markets are not that cheap. We expect this distortion to correct in the coming months.”