Making the case for investing in Emerging Market Currencies


Figure 1: Emerging market currencies were not more volatile than developed market currencies over the past year


nervousness about large drawdowns on emerging PDUNHW DVVHWV ZKHQ WKHUH LV D ´ÁLJKW WR OLTXLGLW\µ GXULQJ ÀQDQFLDO FULVHV 7KHVH FRQFHUQV KDYH EHHQ PDJQLÀHG E\ FXUUHQW IHDUV WKDW WKH 8 6 HFRQRP\ is on the brink of a recession and the catastrophic drawdowns in emerging market asset returns during WKH


JOREDO ÀQDQFLDO FULVLV DUH VWLOO IUHVK LQ WKH minds of investors.


Emerging Markets Have Reduced their Vulnerability to Financial


Shocks Over the past decade, many emerging countries have


By contrast, growth in many developed economies has been stimulated by unsustainably high levels of PRQHWDU\ DQG ÀVFDO VWLPXOXV 7KH FUHGLW FULVLV triggered the current deleveraging in developed economies and the resulting impairment of the credit intermediation process in developed economies will depress their trend rates of growth in years to come.


3URGXFWLYLW\ JURZWK DQG UHDO *'3 SHU FDSLWD LQ emerging economies is likely to continue further towards those of developed economies in the next decade. Consumer, corporate and government balance sheets in emerging markets are less leveraged, banks are better capitalised and the credit intermediation in most emerging economies is functioning normally.


The International Monetary Fund forecasts the growth differential between emerging and developed economies will widen from an average of 3.7 per cent SHU DQQXP RYHU WKH SDVW GHFDGH WR SHU FHQW SHU annum over the QH[W ÀYH \HDUV


48 Currency Investor | Autumn 2011


PDGH VLJQLÀFDQW VWUXFWXUDO LPSURYHPHQWV WR WKHLU economies that have reduced their vulnerability to JOREDO ÀQDQFLDO VKRFNV 0DQ\ HPHUJLQJ FRXQWULHV have bolstered their foreign currency reserves, reduced their level of external debt, public debt-to- *'3 UDWLR DQG WKHLU UHOLDQFH RQ IRUHLJQ FXUUHQF\ denominated debt.


6RXUFHV %ORRPEHUJ 0LOOHQQLXP *OREDO 6HSWHPEHU


6HSWHPEHU


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92