While assessing Malaysia’s simultaneous FX, stock, and bond market meltdown on Friday we described the situation facing emerging market currencies as follows:
When China went the ‘nuclear’ (to quote SocGen) devaluation route in a last ditch effort to rescue its export-driven economy from the perils of an increasingly painful dollar peg, everyone knew things were about to get a whole lot worse for an EM currency basket that was already reeling from plunging commodity prices, slumping Chinese demand, and the threat of an imminent Fed hike. Indeed, moves like that seen in the ringgit (which has suffered its worst two-day decline against the dollar since 1998) have some commentators suggesting that an Asian Financial Crisis redux is now in the cards.
And while Asia ex-Japan currencies may face the most immediate risk, the pain from Beijing’s entry into the global currency wars will be felt acutely in LatAm as well. Take Chile and Colombia for instance where, as we detailed earlier this month, the pesos (respectively) have been under tremendous pressure over the course of the past year.
And of course there’s Brazil, where all roads lead to further devaluation as the government grapples with the worst stagflation in a decade as well as current account and budget deficits.
So where, one might ask, does that leave emerging markets? In other words, we’ve felt the initial shockwaves of China’s entrance into the global currency wars, now what can we expect going forward?
Nothing good for Asian currencies, Morgan Stanley says. Here’s more from the bank’s global currency research team on which countries have the most to lose.
This post was published at Zero Hedge on 08/17/2015.
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