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Emerging Market Currencies

Ray Ng Jun Rui
May 20, 2018
52

Emerging Market Currencies

Ray Ng Jun Rui

May 20, 2018
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Transcript

  1. Introduction • Emerging Markets – BRIC nations • FX exposure

    of banks • Commercial banks deal in foreign currencies, holding assets and liabilities in foreign denominated currencies • Exposure to Foreign Exchange Risk
  2. Introduction Factors affecting EM currencies • Political unrest • Global

    debt markets • Monetary policy • Commodity pricing
  3. Current Outlook – Bullish Scenario • Crude Oil Price •

    Commodities Commodities Pricing • World economy growth • Improvements in EM fundamentals EM Growth Drivers • Economic and political reforms Political Drivers
  4. Current Outlook – Bearish Scenario • Rate Hikes • Steepening

    yield Curve US Monetary Policy • Current Account Deficit • Slowing Chinese Growth EM Growth Drivers • Trade Protectionism Political Drivers
  5. Opportunities • Diversification of portfolio • EM Carry Trades •

    Steepening Yield Curve Trade – Long Short Term Debt – Short Long Term Debt • “Reverse remittances" Brazil Russia India China 6.5% 7.25% 6.0% 1.75%
  6. Threats • Political Instability • Foreign Exchange Risk • US

    rate hikes - Capital Outflows • Interest Rate Risk – EM Central Banks start to raise rates in response
  7. Threats Brazil • Election Uncertainty in October Russia • RUB

    is closely related to crude oil and natural gas prices India • INR is on a managed float policy against the USD China • Slowing growth
  8. China Construction Bank (Asia) Trends in FX Trading • RUB

    and INR are the 18th most traded currency in terms of daily forex market turnover with daily turnover of $58 billion • BRL is the 19th most traded currency in terms of daily forex market turnover with daily turnover of $51 billion
  9. China Construction Bank (Asia) Opportunities FX Margin Trading • Currently

    offers 11 currencies for trading Foreign Exchange • Currently offers 12 major currencies, only ZAR and RMB classified as EM currencies Cross Border Transactions • Reverse Remittance Service
  10. China Construction Bank (Asia) Threats • Liabilities - Chinese Yuan,

    FX Swaps, Forwards • Assets - FX exposure • Capital Outflows into EM