Emerging market grows

Emerging market currency gains will probably be dominated by high-yielding currencies rather than low-risk bets next year as economic growth finally recovers in response to lower interest rates, a Reuters poll found yesterday.

Three-quarters of 40 strategists and analysts said next year would be dominated by high yielding currencies.

ING Financial Markets wrote that while it sees a modest slowdown in Chinese growth, it expects recoveries in the likes of Brazil, Russia, Mexico, India and several other Asian countries, meaning the growth outlook favours emerging versus developed market currencies.

The Brazilian real is expected to be one of the notable gainers in emerging markets against the dollar, firming to 3.97/$.

Currency markets looked to safer bets in general, shunning high-risk-reward pairs such as the rand against a very strong dollar.

The high-yielding rand might not even be part of that theme next year as official data this week confirmed the economy contracted 0.6% last quarter, raising concerns that a recession is currently in play.

But the currency will remain resilient in the face of many challenges, slipping 3% to 15 per dollar in three months and then stay there.

“After all, some of these large emerging market monetary easing cycles and big currency declines should be providing some support,” the ING noted.

SA’s Reserve Bank is probably one of the few major emerging market central banks that, unlike peers such as Mexico and India, has not taken part in easing rates this year. –