|
London: The five-year rally in emerging- market currencies is coming to an end as central banks from South Korea to Turkey struggle to contain inflation, say DWS Investments and Morgan Stanley.
The 26 developing-country currencies tracked by Bloomberg returned an average 0.96 per cent in the past three months, down from 1.63 per cent in the first quarter, 8.2 per cent for all of 2007, and 30 per cent annually since 2003.
For the first time in seven years, investors are less bullish on emerging-market stocks than on US equities, a Merrill Lynch & Co. survey showed last week.
Confidence in the Indian rupee is weakening after inflation accelerated at the fastest pace in 13 years, stoked by soaring food and energy prices.
South Korea's won will drop this year by the most since 2000, while Turkey's lira will reverse its biggest gain since at least 1972, the median estimates of strategists surveyed by Bloomberg show.
"There are some countries that suffer from weak institutions, where central banks have not been proactively fighting inflation and sentiment has deteriorated,'' said Nicolas Schlotthauer, a fund manager in Frankfurt at DWS Investments, which oversees about $400 billion.
Schlotthauer said he expects the Indonesian rupiah and the Philippine and Colombian pesos to underperform emerging-market assets.
Food and energy prices account for more than 40 per cent of inflation in India, Thailand and Turkey, compared with about 25 per cent in the US, according to Morgan Stanley. Inflation exceeds targets in at least 19 emerging economies.
European Union ties
The developing-economy currencies tracked by Bloomberg strengthened an average 32 per cent in the past five years, led by gains of 94 per cent in Slovakia's koruna and 93 per cent in Poland's zloty as those nations forged closer ties with the European Union.
In Latin America, Brazil's real has surged 80 per cent while the Colombian peso has climbed 62 per cent since 2002 amid a boom in commodities.
Slovakia will adopt the euro next year, while the zloty will depreciate to 3.33 against the dollar by year-end from 3.22, according the median estimate of strategists surveyed by Bloomberg. In South America, the real will weaken to 1.70 by the start of 2009 from 1.59 and the peso will decline to 1,888 from 1,805, the surveys show.
Emerging-market and high-yield bonds are poised to fall this year for first time since 1999, a Merrill Lynch index shows.
Investors prefer US equities over developing economies' stock markets for the first time since 2001, according to Merrill's July survey of money managers who oversee $610 billion.
A net four per cent of investors said they were "overweight'' emerging markets, down from 25 per cent in June.
"It's going to be a more challenging environment for emerging markets as you're going to see less portfolio flows,'' said Koon Chow, a Europe, Middle East and Africa foreign-exchange strategist at Barclays in London.
"People are focusing more on the domestic fundamentals like fiscal and monetary policy credibility. In the past, there was less differentiation.''
Fitch Ratings cut the credit outlooks in the past month on South Africa and India, whose currencies gained 74 per cent and 18 per cent in the five years through 2007.
|
