Bonds, Currencies, Emerging Markets, Frontier Markets, Stocks

Emerging Market Currencies Perfectly Positioned To Crash Following The Devaluation Events in China, Vietnam And Kazakhstan

Emerging Market Currencies 2

Kazakhstan’s currency fell by a record 23% in trade on Thursday, August 20th, after the country abandoned control of its exchange rate, as it became the latest emerging market to scrap efforts to prop up its currency before the U.S. Federal Reserve hikes interest rates.

Vietnam’s Central bank has devalued the nation’s currency on Wednesday, August 19th, for the third time this year and widened the its trading band, in the latest sign of stress in Asian exchange rates following a move last week by China to devalue its currency.

Here’s a quick summary of the currencies that are among those most at risk to crash in the very near future predominantly due to plummeting oil prices or/and trade exposure to China:

180x150px_Saudi_London_v1Saudi Arabia (riyal):

  • Foreign reserves: $672 billion.
  • The world’s largest oil exporter.
  • Speculators are betting on a break of the currency regime as crude oil tumbled to a 7-year low.
  • According to Bloomberg, the forwards fell to the weakest level since 2003, implying about a 1% decline in the currency over the next 12 months.

Turkmenistan (manat):

  • Net oil exporter.
  • Holds close economic ties to Russia.
  • Already devalued its currency by 19% in January.
  • SEB AB forecasts a further weakening of as much as 20% in the next 6 months.

Tajikistan (somoni):

  • Holds close ties with Kazakhstan (~11% of trade).
  • SEB forecasts a depreciation of 10-20%.

Armenia (dram):

  • Currency loss during the past 12 months: 15%.
  • 25% of the country’s trade is with Russia.

Kyrgyzstan (som):

BMI Research team see the pressure on the som devaluation from the country’s close ties with Kazakhstan.

Egypt (pound):

According to Bloomberg, traders are betting the pound will weaken about 22% in a year.

Turkey (lira):

  • One of the world’s worst-performing currency markets since China’s devaluation on August 11th.
  • The extra pressure comes from an escalation in political violence and general developments.
  • The conflict with the neighboring Islamic State in Syria is also a drag.

Nigeria (naira):

  • Net oil exporter.
  • Accoriding to Bloomberg, trading in forwards indicates the currency will fall more than 20% against the dollar over the next 12 months.

Ghana (cedi):

  • Net oil exporter.
  • Main problems are fiscal imbalances.
  • Rising inflation and increasing debt will put some extra pressure to devalue the currency.

Zambia (kwacha):

  • Heavily exposed to China.
  • Copper accounts for about 70% of exports.

Malaysia (ringgit):

  • The currency fell to a 17-year low on Thursday.
  • Foreign-exchange reserves fell below $100 billion for the first time since 2010.


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