Emerging market currencies under pressure - NBF

Analysts at National Bank Financial suggest that it’s been a rough year so far for currencies of emerging economies as investor sentiment has seemingly been impacted by mounting U.S. protectionism which threatens to disrupt global trade flows and hence hurt growth prospects of emerging economies.

Key Quotes

“Some emerging economies are better positioned than others to weather the current onslaught. Unlike Turkey and Argentina (whose currencies are among the worst performing this year), several major emerging economies including Brazil, India and China are in a much better economic situation than say 1997, when the Asian financial crisis started, thanks to sharp increases in foreign exchange reserves and manageable external deficits.”

“But with foreign investors having a tendency of painting all emerging markets with the same brush, there’s no guarantee even those economies with good fundamentals will remain unscathed.”

“The Chinese yuan for example has lost more than 8% against the USD since April. That’s the worst four-month slump since 1994 when the currency was devalued as part of broader reforms.”

“Should the U.S. deliver on its threat to impose steeper tariffs on more imports from China, one can expect the yuan to sink further either via market forces or by “currency management” from Beijing. All told, emerging market currency woes could persist amidst trade-related uncertainties, boosting the trade-weighted USD at least over the near term.”