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Emerging Market Currencies To Crash 30-50%, Jen Says
Less than 24 hours ago, we argued that although it might have seemed as though Brazil hit rock bottom in Q2 when it suffered through the worst inflation-growth mix in over a decade, things were likely to get worse still.
The country, which is also coping with twin deficits and a terribly fractious political environment, is at the center of what Morgan Stanley recently called “a triple unwind of EM credit, China’s leverage, and US monetary easing” and now that its most critical trading partner has officially entered the global currency war, all roads lead to further devaluation of the faltering BRL.
And it’s not just the BRL. As Bloomberg reports, former IMF economist Stephen Jen (who called the 1997 Asian crisis while at Morgan Stanley) thinks EM currencies could fall by an average of 30% going forward on the back of the PBoC’s move to devalue the yuan. Here’s more:
[The] devaluation of the yuan risks a new round of competitive easing that may send currencies from Brazil's real to Indonesia's rupiah tumbling by an average 30 percent to 50 percent in the next nine months, according to investor and former International Monetary Fund economist Stephen Jen.
Volatility measures were already signaling rising distress in emerging markets even before China's shock move. An index of anticipated price swings climbed above a rich-world gauge at the end of July, reversing the trend seen for most of the past six months.
"If this is the beginning of a new phase in Beijing's currency policy, it would be the biggest development in the currency world this year,'' said Jen, founder of London-based hedge fund SLJ Macro Partners LLP. "The emerging-market currency weakening trend is now going global.''
Latin America is a particular concern because of the region's high levels of corporate debt, said Jen
Jen recommends selling the real, rupiah and South African rand -- all currencies of commodity exporters, which rely on China for a large chunk of their foreign earnings.
As well as the drop in raw-materials prices, the prospect of higher interest rates in the U.S. has also drawn away investment, pushing a Bloomberg index of emerging-market exchange rates down 20 percent in the past year. A Latin American measure headed for its 13th monthly loss out of 14, while an Asian gauge plunged Tuesday to its lowest in six years.
And a bit more color from WSJ:
If China’s devaluation deepens, pressure to weaken currencies could become particularly intense in other Asian nations that export large amounts to China or compete with Beijing in other markets. Asian currencies tumbled on Tuesday, notably the South Korean won, Australian dollar and Thai baht, as investors bet China’s move could lead to further monetary easing in those nations. Many Asian nations have cut rates this year and could be forced to take further action in coming months.
“A new theme has emerged—one of Asian currency weakness,” said Wai Ho Leong, an economist in Asia at Barclays.
To be sure, it's all down hill from here, and on that note, we'll reprise our conclusion from last week's "Emerging Market Mayhem" piece: Between an inevitable (if now delayed) Fed hike, stubbornly low commodities prices, the entry of the world's most important economy into the global currency wars, and, perhaps most importantly from a big picture, long-term perspective, a seismic shift in the pace of global demand and trade, we could begin to see a wholesale shift in which the markets formerly known as "emerging" quickly descend into "frontier" status and after that, well, cue the "humanitarian aid" packages.
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Here's a look at the damage since Monday, right before the devaluation:
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We ain't seen nuttin' yet. And Deja Vu all over again for that matter. Didn't EM's get crushed in 2008-09 as well?
It does sink the TPP without firing a shot.I wonder if that was part of the motivation.
Add to this...the US Treasury market is being driven to a cliff with massive debt issuance coming Nov 1'ish and next to no buyers remaining...
all the details...
http://econimica.blogspot.com/2015/08/fed-never-intended-to-raise-rates-or.html
I read where the TPP was already shot.
Make sure with a coup de grace.
Like my lawyers advice years ago.If you hit a pedesteran when driving,
make sure to reverse over them after, its cheaper.
They're following the Fed's lead in order to stay competitive. If one has to manipulate the currency, it's never a good sign.
As long as all these countries hold the US Dollar as their reserves they will be insullated from all future currency related problems.
....and if I have to put some 'sarc' tag on this post you don't belong on ZH.
"Who wants dollar reserves?" is the wrong question.
"Who wants to have oil?" is the right question.
I need to start ordering more pop corns.
All I know is that my colored strips of paper aren't buying me anywhere near as much gas at the pump!
WHY has gas shot up a dollar a gallon in the last TWO DAYS??
Anyone?? RBOB hasn't gone up virtually at all!
It's total fucking bullshit!!!!!!!
I think that there were a couple of 'unscheduled' refinery shutdowns. BP and one other.
As I've learned on ZH, the #1 cause of refinery fires are low prices at the pump.
regular unleaded right now within the city of houston near the galleria is at 2.49 a gallon. it's been trending down the past two weeks.
try this
Gas Buddy Gas Prices
http://then.gasbuddy.com/GB_Price_List.aspx
So who will be first to give up fiat for real money? Besides Zimbabwe that is.
https://www.youtube.com/watch?v=Jt15F21jpN8
This should bid well for PM....and stocks of course(as we have seen in Venezuela).
So the world's currencies will go down by 30-50%?
And the dollar will just sit there and do nothing, as the US economy collapses?
Did you hear Kylie Jenner named her rabbit "Bruce"?
EMs should consider a move from the USD
They could possibly improve 30 to 50 percent
and we wonder what the cause was of that huge explosion in the Chinese city today? Nah.
Honey, did you say you wanted to take a vacation recently?
can't wait to see the results in venezuela.
Gold should go up.
Couldn't be more wrong. China is serving notice to Washington. You want to pump dollar up you have to go alone.
Dollar could not have rallied so far if Yuan didn't tag along.
For emerging market currency to fall another 30% you have to assume dollar rise 30%. Can't do it . China would eat America for lunch.
welll people in those nations should buy gold now.... but I am sure the assholes will naked short it later
5 hours ago an article about everyone being wrong about the US dollar, now this... if you bet both ways, you will win one of the bets for sure.