Emerging Economy Currencies Suffer as Investors Flee

South African rand. Picture: REUTERS
South African rand. Picture: REUTERS

by Jerome Kuseh

Business media is reporting a bad day for commodities, emerging economies and stocks around the world on the back of significantly poor manufacturing data from China. MarketWatch reports a 77-month low for the Caixin China Manufacturing Purchasing Managers’ Index, a measure of manufacturing activity. The slump means the prices of commodities which depend on Chinese demand fell. This is bad news for many emerging economies including Ghana, which have economies largely dependent on the export of commodities.

With the outlook for commodities not looking good and the USA recovering from the economic downturn, investors are fleeing from emerging economies. Their currencies are depreciating as a result.

Fortune is reporting that capital is flooding out of the emerging world. It states that analysts believe about $1 trillion has flowed out of emerging economies in the last 13 months. The Russian ruble is near a 17-year low, the Kazakh tenge lost 20% to the dollar, the South African rand fell to its lowest against the dollar since 2001, and the dollar is 38% up against Turkish lira from levels a year ago. The Globe and Mail reports that sentiments have shifted against emerging economies to the extent that neutral news is regarded as negative.

Business Insider reports:

No fewer than 17 emerging-market countries have seen their currency fall 3% or more since Monday, according to Jim Reid at Deutsche Bank.

The list includes Russia, Ghana, Guinea, Colombia, Belarus, Turkey, Malaysia, and Algeria.

Societe Generale strategists said: “Emerging market currencies and commodity prices are in a ‘death spiral‘ that is destroying central banks’ efforts to bring inflation back to long-term targets.”

Brent crude is currently at US$45.31. Gold price is recovering as investors look for a safe haven for their money. MarketWatch reports a 5.3% jump in gold prices from last month but warns that a hike in the US Federal Reserve rate will likely end this rally.

The cedi has fallen by about 29% since the beginning of the year. Zerohedge reports that the Bank of Ghana has intervened to smooth out volatility but as at the time of writing I have not got any other report confirming this.

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Jerome Kuseh

Accountant | Economist-in-Training | Private Investor
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13 comments

  1. When China limbs, the world feels her pain. A resolute economy is a sure bet for financial inflows but getting the matrix right is a challenge for developing nations

  2. When China limbs, the world feels her pain. A resolute economy is a sure bet for financial inflows but getting the matrix right is a challenge for developing nations

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