After a rough 2013, times haven’t been any easier for emerging markets investors in the last week or two with poor results from Apple last night likely to hit Asian technology stocks. The Argentinian Peso and Turlish Lira crisis as well as a risk of a liquidity short fall in China have all taken their toll since mid last week. Overnight there was a rebound in Asian markets after the sell off indicating some signs that bargain hunters may be coming back to emerging markets currencies. But will it last?
A further potential tapering by the Federal Reserve this week increases the pressure on emerging economies with a risk that investors will pull further funds out of the sector with countries like Argentina, Venezuela, South Africa, Turkey and Brazil in the firing line. Countries with high current account deficits, political trouble and those reliant on commodity income are seen as particularly vulnerable . For example South Africa currently has a record current account deficit.
The MSCI Asia-Pacific index is down around 4% in the last 3 days and is at a five month low. In 2013 China was down 7.1%, Brazil 15.9%, and India 3.5%. The FTSE Emerging Markets index is down 6.2% for the year.
Worries about the Chinese shadow banking system were highlighted in the last few days with a potential default of a large trust and with Rmb4tn ($661bn) in trusts reaching maturity in 2014 amid tight liquidity conditions.
China Credit Trust, one of the country’s biggest “shadow bank” institutions, raised Rmb3bn from investors three years ago for the investment, which was backed by loans to a coal miner that later collapsed. Yesterday China Credit announced that it had reached an agreement with an unnamed third party to sell the shares it held in Shanxi Zhenfu Energy Group, the coal miner, and had taken control of Zhenfu’s shares as collateral when it failed to repay the loan.
Emerging market currencies are in the firing line as institutions and hedge funds have been pulling money out at unprecedented rates since the financial crisis of 2008/09.
The Turkish lira hit record lows of 2.39 against the dollar yesterday after a corruption scandal in Prime Minister Tayyip Erdogan’s government. An emergency meeting of the Turkish central bank is expected to raise interest rates and impose capital controls after a decision last week to keep rates on hold.
Argentina’s government on Monday limited monthly dollar purchases by Argentinians to $2,000 just days after it loosened restrictions in a move that sent the currency into free fall. Argentinians who earn more than 7,200 pesos a month will be able to buy $2,000 a month at most, with a waiver of the 20% tax if the dollars are kept in banks for more than one year, according to the Financial Times .
The South African rand traded at its weakest level since October 2008, a month after Lehman Brothers collapsed and the Russian ruble is down to its lowest level.
Contrarian Investor UK
by contrarianuk
Emerging markets: the Argentinian Peso and Turkish Lira crisis
Jan 28, 2014 at 6:38 am in Market Commentary by contrarianuk
After a rough 2013, times haven’t been any easier for emerging markets investors in the last week or two with poor results from Apple last night likely to hit Asian technology stocks. The Argentinian Peso and Turlish Lira crisis as well as a risk of a liquidity short fall in China have all taken their toll since mid last week. Overnight there was a rebound in Asian markets after the sell off indicating some signs that bargain hunters may be coming back to emerging markets currencies. But will it last?
A further potential tapering by the Federal Reserve this week increases the pressure on emerging economies with a risk that investors will pull further funds out of the sector with countries like Argentina, Venezuela, South Africa, Turkey and Brazil in the firing line. Countries with high current account deficits, political trouble and those reliant on commodity income are seen as particularly vulnerable . For example South Africa currently has a record current account deficit.
The MSCI Asia-Pacific index is down around 4% in the last 3 days and is at a five month low. In 2013 China was down 7.1%, Brazil 15.9%, and India 3.5%. The FTSE Emerging Markets index is down 6.2% for the year.
Worries about the Chinese shadow banking system were highlighted in the last few days with a potential default of a large trust and with Rmb4tn ($661bn) in trusts reaching maturity in 2014 amid tight liquidity conditions.
China Credit Trust, one of the country’s biggest “shadow bank” institutions, raised Rmb3bn from investors three years ago for the investment, which was backed by loans to a coal miner that later collapsed. Yesterday China Credit announced that it had reached an agreement with an unnamed third party to sell the shares it held in Shanxi Zhenfu Energy Group, the coal miner, and had taken control of Zhenfu’s shares as collateral when it failed to repay the loan.
Emerging market currencies are in the firing line as institutions and hedge funds have been pulling money out at unprecedented rates since the financial crisis of 2008/09.
The Turkish lira hit record lows of 2.39 against the dollar yesterday after a corruption scandal in Prime Minister Tayyip Erdogan’s government. An emergency meeting of the Turkish central bank is expected to raise interest rates and impose capital controls after a decision last week to keep rates on hold.
Argentina’s government on Monday limited monthly dollar purchases by Argentinians to $2,000 just days after it loosened restrictions in a move that sent the currency into free fall. Argentinians who earn more than 7,200 pesos a month will be able to buy $2,000 a month at most, with a waiver of the 20% tax if the dollars are kept in banks for more than one year, according to the Financial Times .
The South African rand traded at its weakest level since October 2008, a month after Lehman Brothers collapsed and the Russian ruble is down to its lowest level.
Contrarian Investor UK