I's hard not to laugh at the irony of recent central bank currency actions.
After complaining for years about the strength of the Real, the Brazilian central bank stepped up intervention actions hoping to stop a plunge in the currency.
Turkey now attempts to attract capital after taking measures for the past four years to stop the flow of money into the country.
In India, the central bank seeks to stop a plunge in the Rupee which is at a record low of record low 58.95 to the dollar.
Emerging markets-related disruption continued overnight, as the Nikkei fell nearly 2%, pounded by the rise in the yen due to its status as a flight currency. Other Asian markets took a hit as well, with only Australia emerging relatively unscathed:
Argentina Institutes 50% Tax on Internet Purchases; Emerging Market Contagion Spreads; Argentina, Venezuela, Turkey Roundup Yesterday, Argentina devalued the Peso hoping to halt further declines in its currency reserves. Markets had seen this coming as charts of the Peso vs. the US dollar show.Peso vs. US Dollar One Week
For the last six years, global monetary trends tended to affect emerging markets as a unit. First, near-zero interest rates in the developed world pushed yield-seeking capital into emerging stocks and bonds, then the “taper tantrum” sucked it back out. Today, however, their economic paths are diverging.
Emerging-market investors might be a bit worried about the U.S. Federal Reserve’s next few moves, especially if it leads to higher interest rates south of the border.
Just the hint that the world’s most powerful central bank was going to start tapering its bond-buying program caused a major selloff last year in the developing world.
But a less accommodative Fed may not be the risk it’s being made out to be and may even be a good thing, said John Higgins, an economist at Capital Economics.
As worried investors continue to sell stocks, you might think it’s time to look overseas for some bargains.
Let me save you the trouble — don’t do it. Selling out of U.S. stocks for emerging market exposure right now would be like jumping out of the frying pan right into the fire…
Sure, I’ve talked about emerging markets a lot over the past year. Heck, we even traded some of them last summer when they bottomed and shot higher. I even noted that the potential breakout move in China’s Shanghai Composite was one of my favorite setups of 2014.
When a repeated set of minor chords builds slowly but steadily during a scary movie, it’s usually clear what’s coming next. The notes are about to flash suddenly higher, and whatever it is that is threatening the hero will be revealed to have been lurking right behind him the whole time.
Thanks to Katie Martin for pointing this out... South Africa's currency is getting clobbered again. Here's a chart of the dollar vs. the rand (USDZAR) which shows it shooting up since this weekend, easily surpassing the highest levels of late last week (levels that themselves were seen as alarming).