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The currencies of emerging nations, including China, have fallen the most this year since spring 2020 when the COVID War began, the Financial Times reported.
Rising U.S. interest rates are luring capital away from riskier markets and back to the safety of the dollar.
At the same time, China’s protracted lockdown is scuttling markets for the raw materials that less-developed nations export.
Since early April, the MSCI index of emerging nations’ currencies has slid 4 percent, the FT noted.
On 11 May, India’s central bank reportedly intervened to keep the rupee from falling further.
The same day, China’s renminbi sank to its lowest level against the dollar since late 2020 after data showed exports had slowed to their lowest pace in two years.
The news sparked an additional round of selling of the nations’ currencies.
“We’ve had this cooling down of Chinese demand at a time when the Fed is hiking interest rates and inflation is still pushing higher,” Cristian Maggio, emerging market strategies at TD Securities, said to the FT.
“As if that weren’t enough, we still have the risks related to the war in Ukraine,” he said. “It’s a very toxic combination.”
Russia’s invasion of Ukraine spiked prices higher across a range of commodities, with much of that added demand focused on food staples, which relatively few emerging nations export in quantity.
Emerging markets had “the tailwind of higher rates [for] commodities,” Polina Kurdyavko, emerging market debt analyst at BlueBay Asset Management, told the FT. “The question was always how long that would last.”
Brazil and South Africa saw their currencies rise in the wake of the invasion, but since have surrendered a portion of those gains.
TREND FORECAST: As interest rates rise, emerging nations’ economies will continue to wobble and many of the countries will default on their debts.
Unlike in the past, the industrial and post-industrial world will have fewer resources with which to bail them out.
As these economies crumble, citizens will protest, rocking governments, shaking social stability, sparking new political movements, and contributing to our New World Disorder trend that we highlighted for 2021 and that has been gathering momentum ever since.