Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Emerging Market Currencies Hit the Skids

Economics / Emerging Markets Jan 07, 2016 - 10:12 AM GMT

By: AnyOption

Economics

Investors, equities traders and global analysts were shocked when the Shenzhen Composite Index and the Shanghai Composite Index opened to a 7% decline on Monday, 4 January 2015. That alarm bells sounded and markets were shut down is testament to the precarious predicament of Chinese equities. As the world's second largest economy, China weakness has a devastating effect on the fortunes of developing countries and developed countries alike. Such was the negative sentiment around the sharp declines in Chinese equities, mutual funds and foreign funds (with an emphasis on Asian stocks), that global bourses also moved south. The situation is being compounded by sharp declines in oil prices, with oil futures for February setting fresh new lows.


MSCI Emerging Markets Index

As cases in point, the S&P 500 index slid 1.5%, the DJIA (Dow Jones Industrial Average) declined by 1.5% to 16,895 and the NASDAQ composite index plunged 1.6%. In Europe, the Stoxx Europe 600 shed 1.7%, as the resources sector dragged the entire index lower. This was exacerbated by sharp declines in the price of copper and Brent crude oil dropping below the crucial $35 per barrel support level. Fueling the equities decline in China was a rapid deceleration of service growth activity in the month of December 2015. The PMI index dropped 1 point from 51.2 in November 2015 to 50.2 in December 2015 according to the Caixin China index. The PMI is now just 0.2 points above the critical 50 level – any readings beneath 50 represent a contraction in overall economic activity.

How China Weakness is Impacting on Emerging Market Currencies?

China is the world’s biggest emerging market economy, and the Chinese yuan is being propped up by the People's Bank of China. The Chinese do not allow the CNY to fluctuate according to market forces, since government intervention plays an active part in maintaining a peg to the USD. As the Chinese economy loses steam, import and export numbers decline. This naturally impacts upon the demand from emerging market countries such as Brazil, Russia, South Africa, Kenya, Venezuela, Zaire, Zambia, Nigeria and others. These countries typically produce vast quantities of natural resources that are consumed en masse by China such as metals and energy commodities. Some of the hardest hit sectors to date include copper, iron ore, coal, natural gas, oil, molybdenum, aluminium, zinc and others. Contractions have been taking place across the board and the manufacturing sector in China has declined for the 10th successive month as at December 2015.

  • The Vanguard Emerging Markets Stock Index Fund (VEMSIF) plunged 2.9% recently
  • Heavy investments in emerging markets coupled with sharp depreciations in exchange rates have left these countries with massive debts that their economies cannot sustain
  • Currency traders are now selling emerging market currencies en masse and buying the USD, GBP and Euro
  • The Turkish lira (-1.6%) and the Brazilian real ($0.2475) slumped approximately 2 percentage points against the USD
  • Emerging market currencies are now on the back foot after showing some resilience of late
  • Money managers are avoiding emerging market countries like the plague, given the volatility, uncertainty and high risk profile of these countries under current global economic conditions
  • Further rate hikes by the Fed are going to strengthen demand for the USD and weaken demand for emerging market currencies

The problems with the emerging market economies are not limited to the supply and demand considerations taking place in China. For example countries like South Africa are plagued by a broken power-grid system which interrupts daily business activity, malfeasance in government, a complete loss of investor confidence, and massive trade union disruptions. In Turkey, problems include hyperinflation, a lack of international investor confidence in the central bank of the country, et al.

One of the leading investment corporations – Societe Generale – estimates that $540 billion of capital flight from EM countries took place during 2015. Even though the currencies for these countries are cheap, and appear to be attractive buying options there is way too much downward pressure for currency traders to go all-in right now. As it stands, the number one concern for emerging market countries (developing countries) is China weakness. The year is likely to be dominated by the slowdown in China given its 180° pivot from an export-driven economy to one which is focusing on services and consumption in the domestic economy. We will naturally see ongoing weakness vis-a-vis EM currencies while the G-10 currencies show renewed strength.

Anyoption™ is the world's leading binary options trading platform. Founded in 2008, anyoption was the first financial trading platform that made it possible for anyone to invest and profit from the global stock market through trading binary options.

Our goal here at Market Oracle is to provide readers with valued insights and opinions on market events and the stories that surround them.

Website anyoption.com

© 2016 Copyright  Anyoption - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules