Bernanke buys time for Brazil to India as rupiah leads rally

Fed Signal

“For us, the sooner it starts and ends, the better,” Coutinho said in an interview at Bloomberg’s headquarters in New York yesterday. “I would rather see it start today and have some date to finish because then we will feel the whole impact. The worst thing is the uncertainty.”

Bernanke first signaled on May 22 that policy makers could reduce the bond purchases, triggering capital outflows and a selloff in emerging markets. More than $50 billion has left global funds investing in emerging-market bonds and stocks since May, extending the outflow this year to $11 billion, according to data from EPFR Global.

The rand, real, rupee, rupiah and lira, dubbed the “fragile five” by Morgan Stanley strategists because of their countries’ reliance on foreign capital for financing needs, dropped as much as 18% in the four months through August.

Debt Sales

The selloff reversed this month as economic data from China to Brazil improved. China’s exports jumped 7.2% in August from a year earlier, beating estimates, the nation’s customs service said Sept. 8. Brazil’s July retail sales rose almost 10 times faster than economists predicted, as consumers spent more on food, clothing and appliances.

“People trashed emerging markets,” Pablo Cisilino, a money manager at Stone Harbor Investment Partners LP, which has about $55 billion in emerging-market debt, said in a phone interview from New York yesterday. “People were too optimistic about developed market growth and too pessimistic about emerging markets. They are revising that now. There’s more room to go.”

The market stability encouraged developing-country borrowers to come back to the international debt market to raise funds. Companies including America Movil SAB, the biggest Latin American mobile-phone company, and Ecopetrol SA, Colombia’s state-owned oil producer, raised $16.8 billion in bond sales this month, compared with $7.5 billion in August, according to data compiled by Bloomberg.

Brazil’s central bank announced a $60 billion intervention program of currency swaps and foreign-exchange credit lines through the end of the year in a bid to support the real. Reserve Bank of India Governor Raghuram Rajan, who took office this month, unveiled a package of measures that Barclays Plc estimated may lure $10 billion in capital inflows.

The Fed’s decision yesterday has given the countries some time to build up their defenses and rebalance their economies, said Lazard’s Simon.

“It does not solve all the issues in emerging markets,” said Simon. “But with the rates staying low and dollar weakness, that’s a positive for emerging-market assets.”

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