Strategic Global Partners say weakening in emerging market currencies may require drastic action to arrest the declines.
Tokyo, Japan -- (SBWIRE) -- 02/05/2014 -- According to Tokyo based Strategic Global Partners, the systematic decline in emerging market currencies since the US Federal Reserve announced its intention to scale back its massive monetary stimulus has prompted central banks in two countries, Turkey and South Africa, to hike interest rates in a bid to stem capital outflows.
Turkey’s central bank raised rates from 7.75% to 12% in a move aimed at strengthening its currency the lira, which has been in a steady slide against all other major currencies since 2012.
South Africa’s central bank’s hike was rather more modest with a 50 basis point increase from 5% to 5.5% in an effort to strengthen the rand.
“The era of emerging markets benefiting conspicuously from ultra-low interest rates in the advanced economies may be coming to an abrupt end. Fed tapering is being seeing by investors as a prelude to higher interest rates and an opportunity to get good returns on dollar-denominated assets without the risk of holding emerging market assets,” said a Strategic Global Partners tech analyst.
The lira strengthened after the announcement but by the time the US trading session began, it had given back much of any immediate gains it had made against the US dollar.
“Markets are keeping a close eye on the lira because it could give clues as to whether attractive yields or interest rates in emerging markets can tempt investors away from US equities and the relative safety of US bonds,” said the Strategic Global Partners analyst.
The firm says it is holding fire on emerging market investments until a clearer picture emerges over the progress of Fed tapering.
About Strategic Global Partners
At Strategic Global Partners we work in conjunction with international private, corporate and institutional investors to provide them with comprehensive financial services, including portfolio management, investment research and trading facilities.
As your strategic advisor, it is our job to identify profitable investment opportunities while concurrently mitigating any risks, as we look to add value to your portfolio and make it more resilient against market volatility.
We provide our clients with direct access to market-leading platforms, analytical tools and integrated services, as well as providing in depth market research and tailored advice. Whether you prioritise risk, data, transparency, and/or complex issues regarding taxation, regulation or developing markets — we'll tailor an investment strategy that is right for you and structure your portfolio accordingly.
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