For an investor in emerging equities the best strategy in recent years has been to take a contrarian stance, says John-Paul Smith at Deutsche Bank.
Speculation is growing that new central bank governor Elvira Nabiullina will cut rates to help stimulate faltering growth soon after takes up her job later this month, but the resilience of the Russian consumer may be another important factor in giving the economy a lift.
Turkey’s lira, South Africa’s rand and South Korea’s won have all lunged, local currency debt yields have suddenly surged, there’s an intense investor focus on domestic political risks again and governments like Brazil who were taxing what they feared were excessive foreign investment over the past couple of years have U-turned as those flows evaporate.
The dog that didn’t bark was how the IMF described inflation. But might the fall in emerging market currencies reverse the current picture of largely benign inflation?
Of all the emerging currency and bond markets that are feeling the heat from the dollar’s rise, none is suffering more than South Africa. A series of horrific economic data prints at home, the prospect of more labour unrest and the slump in metals prices are making this a perfect storm for the country’s financial markets.