Emerging markets are on a roll
Yuan, peso, yen, rouble, rand and dirham rise
EMERGING markets (EMs) started the week with the pedal to the metal yesterday, with the first record high for Asian stocks since 2007 and currencies from China’s yuan to Mexico’s peso and Russia’s rouble rising against a sliding dollar.
Asia’s gains had pushed MSCI’s 24-country EM equities index to its highest in a decade and took its rise over the past 12 months to a beefy 40 percent.
The yuan, meanwhile, scaled a more than two-year peak, helped by the dollar’s travails, but also by news that Germany’s ultra-orthodox central bank, the Bundesbank, was adding the Chinese currency to its reserves.
“What this effectively means in that the People’s Bank of China (PBoC) is not drawing a line in the sand on dollar/China (FX rate), which is interesting,” said HSBC emerging markets strategist Murat Toprak. “But it is in line with what is also happening with euro/dollar and the rest of the market.”
It wasn’t only the big picture moves that caught the eye, though. Morocco has become the latest country to introduce a more flexible exchange rate system under the guidance of the International Monetary Fund after stalling on the idea last year.
The band which the country’s dirham trades in against the world’s top “hard” currencies is being widened from 0.3 percent either side of the previous day’s close to 2.5 percent either side, giving a 5 percent range in total.
Morocco’s central bank set the new range at 8.9969 to 9.4524 dirhams to the US dollar yesterday, which left the spot market rate at around 9.2380 to 9.2430 data showed.
Jakob Christensen, head of EM research at Danske Bank said it met the IMF’s recommendations and came at a good time, given the country’s recent improvement in economic growth and foreign reserves, which now cover around 5.8 months of imports.
“They are in a fairly strong position to move to more flexibility. There wouldn’t be any imminent devaluation pressures, so the time is right to do it,” he said.
Unlike some other countries in the region, Morocco has managed to avoid a big drop in foreign investments since the global financial crisis and the Arab Spring uprisings of 2011, partly by marketing itself as an export base for Europe, the Middle East and Africa.
Exports have been growing since attracting heavyweights in the automotive and aeronautic industries and a weaker currency would also help the tourism sector and remittances from the 4.5 million Moroccans living abroad. However, rising commodity prices could push up inflation in a country that is one of the region’s biggest energy importers.
Elsewhere, Russia’s rouble climbed to a more than 7-month high of 56.42 to the dollar as oil prices consolidate recent sharp gains. South Africa’s rand also saw its biggest rise in over a week.