Emerging-Market Currencies Tumble

01-Feb-2014 Intellasia | Businessweek | 6:00 AM Print This Post

It’s been a chaotic 2014 for the Argentine peso, the Turkish lira, and South Africa’s rand. A falling currency alarms investors and risks inflation, but defending it from depreciation requires imposing high interest rates or using up precious reserves of foreign exchange.

Analysts at HSBC devised a taxonomy of emerging markets that separates the bad from the good. Here’s a paraphrase of the bank’s take:

The badly managed

Argentina, Venezuela, Ukraine

Unwillingness to let currencies fall has led to rapid losses of foreign exchange reserves. The HSBC analysts say a complete “macro overhaul” is needed.

The trade deficitand inflation club

Brazil, Turkey, Indonesia,India, South Africa

These countries need to cheapen their currencies to shrink yawning trade deficits and impose reforms to increase productivity.

The cyclically vulnerable

Czech Republic, Hungary, Mexico

Fundamentally strong, yet typically hit hard in a global downturn, they should recover once their major trading partners start buying again.

The happy depreciation club

Peru, Chile, Thailand, Israel

Retaining the confidence of investors, they were able to lower interest rates in 2013. They don’t mind if their currencies get a little cheaper.



Category: FinanceAsia

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