While differentiation is important, the end of China’s “investment and export boom” may still put emerging-market currencies on a declining trend, according to Morgan Stanley.
“We continue to see the risks surrounding China’s macro trajectory as having a negative impact on EM,” Rashique Rahman, the New York-based co-head of foreign-exchange and emerging- market strategy at Morgan Stanley, wrote in a note yesterday. “As capital costs rise and investment slows, commodity prices should come under pressure, boding poorly for economies linked to China’s old growth model.”
Brazil’s Real
Morgan Stanley has a “reduce” rating on emerging-market currencies, while recommending selling the Russian ruble against the dollar.
Brazil’s real fell to a five-month low of 2.4327 per dollar today and has lost 28 percent over the past two years. Brazil should return to the policies of former President Luiz Inacio Lula da Silva to boost growth, tame rising consumer prices and attract foreign investment, Pacific Investment Management Co. said yesterday.
“Valuations are attractive, but unless an effective policy mix is restored, the outlook for order in Brazil’s financial markets is less certain,” Michael Gomez, the co-head of emerging markets, said in a report published on the fund’s website yesterday.
Pimco Chief Investment Officer Bill Gross said last week that Brazil was no longer a preferred market. The comment came more than a decade after the firm bought the country’s bonds as they plunged before presidential elections in 2002, a bet that proved prescient.
“The market is punishing those countries with bad policies and politics,” Bhanu Baweja, the head of emerging-market cross- asset strategy at UBS AG, said by phone from London. “There isn’t panic, but we are not finished yet. There’s no reason to buy emerging for now.”