HSBC sees emerging-market currency rebound

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Graphic: Renjith Krishnan.

Cape Town - Emerging-market currencies from South Africa’s rand to Turkey’s lira are set to rebound as market volatility decreases, according to David Bloom, global head of currency strategy at HSBC Holdings Plc.

The rand may gain about 7 percent to 10.40 per dollar by December 31, erasing this year’s 5.7 percent decline, Bloom said in an interview with Bloomberg Television in Cape Town.

The lira, which has depreciated 3.5 percent this year, is set to rise about 5 percent to 2.10 per dollar, he said.

Emerging-market currencies are struggling to recover from a rout that wiped $3 trillion (R33 trillion) off global equity values as the Federal Reserve cuts monetary stimulus.

Volatility in the currencies of Turkey, South Africa and India is declining after their central banks raised interest rates last week.

“Eventually volatility is going to come down, and those interest rates are going to look juicy,” Bloom said.

“The carry starts looking attractive,” he said, referring to the rate of interest earned from securities less the cost of funds borrowed to purchase them.

The rand declined 0.1 percent to 11.1479 per dollar by 4:03 p.m. in Johannesburg.

The currency’s three-month implied volatility versus the dollar dropped 40 basis points today to 15.8 percent, indicating that options traders are expecting price swings to narrow in coming months.

That volatility rose to 17 percent on January 29, the highest since August.

“This is not the time to be bearish,” Bloom said.

“The time to be bearish was a year ago. If you’ve missed that, you’ve missed the boat.”

Rate increases by Turkey, India and South Africa weren’t the start of a tightening cycle as those central banks were responding to global events rather than local economic challenges, Bloom said.

Some of those central banks may even lower rates as their currencies recover he said. - Bloomberg News


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