Finweek English Edition - - Creating Wealth -

ONE OF THE REA­SONS why emerg­ing mar­kets, such as South Africa, are un­der pres­sure is be­cause in­ter­na­tional in­vestors – fear­ing a col­lapse of the world’s fi­nan­cial sys­tem – are try­ing to re­duce their risk by switch­ing to US-dol­lar in­vest­ments. The irony is that the coun­try where the cur­rent cri­sis started is still re­garded as a safe haven for cap­i­tal in times of emer­gency.

The money that’s in­vested es­pe­cially in US Trea­sury bonds – de­spite low re­turns – has re­sulted in the green­back strength­en­ing since July, as shown by the graph of its ex­change rate against the euro, the world’s other ma­jor cur­rency.

That started from a dou­ble top re­ver­sal for­ma­tion (in­di­cated by the ar­rows), but when the sup­port level around US$1,35 was reached there was a slight re­cov­ery. The fol­low­ing im­por­tant sup­port level is at $1,25, a dif­fer­ence of about 7,4%. That could in­di­cate the dol­lar’s run is near­ing its end, which of course co­in­cides with the hope that the mea­sures in­tro­duced by the gov­ern­ments of the world’s large in­dus­tri­alised na­tions will suc­ceed in restor­ing con­fi­dence.

If that hap­pens it is pos­si­ble that cap­i­tal will re­turn to the emerg­ing mar­kets, at­tracted by higher in­ter­est rates as well as the bar­gains de­scribed by Mark Mo­bius of the Templeton Group as re­ported else­where on this page.

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