HedgeTalk - Is the EM FX Complex the Next Shoe To Drop?
By: Johan Rosenberg, Chairman
From a global perspective, creditworthiness in emerging markets (EM) countries is a concern. Confidence in EM currencies is dropping fast, and the strength of the U.S. dollar is draining their liquidity. Investors are pulling their money out just as quickly as globalization had moved it in. What is not reflected in the narrow rebound of the S&P 500, through the likes of Netflix and Amazon, is that the emerging markets will struggle. Brazilian Reals to USD at all-time lows of .18. Mex Peso to USD all-time lows of .04. No matter where you look, Turkey, Argentina, India, South Africa, the story is the same. If you think supply chains are challenged now, just wait until that cheap labor and production becomes insolvent. Companies with earnings coming out of these countries need to prepare for a double whammy, lock-down GDP decay coupled with suppressed exchange value. At least with the latter, FX hedging can protect a bit of the downside.
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