Emerging Market FX Plunges To Record Low As Pesos Plummet

Emerging market investors appear to be the most sensitive canaries in the global investing coalmine as they abandon 'high growth' opportunities in favor of safe-havens, sending broad-based emerging market currencies to record lows...

JPMorgan's Emerging Market FX index just hit a new record low...

Source: Bloomberg

The various "pesos" are leading the most recent collapse...

Source: Bloomberg

Today sees new record lows for the Colombian Peso...

Source: Bloomberg

And fears that Argentine net foreign currency reserves are in a more dire situation than many people assume from looking at the gross figure, sent the peso plummeting back towards record lows...

“We think that the gross FX reserve figure overstates the BCRA’s ability to prop up the peso,” economist Edward Glossop writes in a note.

Capital Economics estimates the BCRA’s net FX reserves have fallen from $30 billion in mid-April to just $19 billion now

Source: Bloomberg

Where investors have stayed local, they have dramatically shifted to investment grade EM debt and away from high yield EM debt:

Source: Bloomberg

“Credit quality will matter, and I strongly prefer investment grade over high yield in emerging-market debt,” said Sergey Dergachev, senior portfolio manager at Union Investment in Frankfurt, who favors Indonesia, India, Egypt and Croatia. “I definitely see more volatility to come.”

But it seems the flood of capital is flowing from EM FX into dollars and from there into US Treasuries, as the long-end of the curve hits new record low yields.

In developing nations, “the balance of risks are skewed to the downside in the near-term,” said Patrick Wacker, a fund manager for emerging-market fixed income at UOB Asset Management Ltd. in Singapore.