Fed Signal
Since the start of May -- the month the Fed signaled it may consider paring its $85 billion in monthly bond purchases -- the Indonesian rupiah has fallen 11 percent against the dollar and the Indian rupee declined 12 percent, with the Turkish lira dropping 9 percent and Brazilian real losing 8 percent. By contrast, the Mexican peso has lost 5 percent, the South Korean won has risen 3.8 percent and the Czech koruna climbed 3.5 percent.
The worst may not be over for the BIITS, if the past is any guide. The Brazilian real lost 51 percent in 2001-02, the Indonesian rupiah plunged 86 percent in 1997-98 and India’s rupee fell 42 percent during 1990-92. In 2000-01, the Turkish lira declined 68 percent and the South African rand depreciated 52 percent.
Many emerging markets also used up a lot of their defenses fighting the global financial crisis in 2008, said Mohamed El- Erian, chief executive and co-chief investment officer at Pacific Investment Management Co., the manager of the world’s biggest bond fund.
Old Habits
While Mexico is “doing the right thing,” he said, Brazil is “back to its old habits” and Turkey “denies it has a problem.”
As these differences become more apparent, people now want “to buy the best of breed,” said Marc Chandler, the New York- based chief currency strategist at Brown Brothers Harriman & Co., which has about $3.4 trillion in assets under custody and administration.
“The Mexico story is attractive and more compelling than some of the others in the region,” while “the BIITS list might be the more-troubled emerging markets.”
At the same time, developing-economy stocks and currencies may have been oversold and many will be able to recover as investors reacquire a taste for risk, according to Jeff Chowdhry, head of emerging-market equities at London-based F&C Asset Management Plc, which oversees about $150 billion.
Investment Opportunities