Center for Strategic Assessment and forecasts

Autonomous non-profit organization

Home / Economy and Finance / Markets: estimates and projections / Articles
Exchange of fire threatens to spread to Russia
Material posted: Publication date: 12-09-2018
In the emerging markets continued large-scale sales of assets, primarily currency.

Negative on emerging markets continues to evolve

The sell-off in emerging markets show no signs of slowing down, writes Bloomberg. This applies to a wide range of assets, primarily the foreign exchange market. This situation, experts believe, may spread to countries with a much more stable economy, as investors ' nervousness increases.

As for currencies, the South African Rand weakened to its lowest level in more than two years demonstrated the worst dynamics among EATING, followed by the Mexican peso. The equity index MSCI Emerging Markets declining for the sixth consecutive session and can display the sharpest in three weeks decline. The most affected Indonesia, where shares fell for a maximum for three years, the value on fears that the rupee depreciation will lead to higher borrowing costs.

An overbought U.S. stock market puts in front of international investors search for alternative investment decisions, indicates a currency strategist GK TeleTrade Alexander Egorov. But the reality is that all the so-called high-yield assets, most of which are concentrated in developing economies are in the high risk zone. The economic problems of most developing countries, associated with large fiscal imbalances and high dependence on external funding, exacerbated internal political divisions.

The leaders of 2018 the most problematic from the camp of developing countries mark and Turkey, and Argentina. The Argentine peso this year dived by more than 50%, competing in tough currency rating with the Turkish Lira. Even a rate hike by the Bank of Argentina to 60% and the signals from the IMF on the faith to the stabilization of the Argentine economy did not stop the weakening of its national currency. The activity of the government of the Latin American countries and President Mauricio Macri does not yet lead to the desired result.

Turkey, the expert said, stands out from other hard internal contradictions. The Central Bank is limited in its actions by President Erdogan, directly opposing the rate hike. Feature of Turkey is that threatened large European, and especially German investment in the Turkish economy.

Touched BRICS

South African Rand is also not an exception and is yet another hotbed of tension. Since early September, the currency of South Africa, by the way, the fifth member of the BRICS group, has lost more than 6% of its value. Political instability after the resignation in February of President Zuma, amid falling revenues from exports of metals and diamonds, supplements the picture of instability in emerging markets, said Alexander Egorov.

And the main threat from the current situation is to implement a Domino effect on the background cross-investment and pressure on financial systems in developing countries by repayments of debt denominated in dollars, he said. Concern for the whole sector is transmitted and more resistant to external shocks economies. The Russian ruble also feels the pressure, although he successfully opposed against the backdrop of high oil prices. But in the case of the correction in the oil market there is a threat to the stability of the Russian currency. The Bank of Russia, on the eve of its meeting on 14 September to evaluate all the circumstances of the impact on financial stability and inflation expectations, not excluding a return to increase in the key rate. Overall, concludes Alexander Egorov, the period of turbulence in emerging markets continues and real exit strategies from this situation, no one was able to offer.

The ruble, like, nothing...

As a rule, the reasons for the emergence of crisis situations are always a few, says analyst eToro what is happening in Russia and the CIS Mikhail Mashchenko. And now, there is a certain cocktail of short-sighted economic policies of a succession of quite reckless and even absurd statements of the heads of individual countries and does not depend on the emerging markets of the circumstances, for example, the trade conflict between the US and China.

The light at the end of the tunnel is not visible yet, says analyst: the absolute champion on defaults — Argentina continues to experience difficulties in connection with the payment of the national debt, high inflation and catastrophic depreciation of the peso; no matter it is in Turkey, where the incumbent President is in confrontation with the West and conducting monetary policy, contrary to economic theory, etc. Currency and securities of developing countries belong to the same group of risky assets, and problems in one state invariably lead to negative consequences for others.

At the moment, the ruble is suffering from turmoil in neighboring markets that discourage investors ' appetite for adventure, as well as from a number of problems, like fluctuation in oil prices and anti-sanctions. So I am sure Michael Mashchenko — in the absence of any positive changes in the exchange rate will continue to slow the decline and may reach a level of 69 rubles per dollar in the autumn, and by the end of the year to test the mark of 70 rubles per dollar.

Anna Koroleva


Tags: Russia , economy , finances

RELATED MATERIALS: Economy and Finance