Analysis: G20 proximity talks needed to avert FX war
Mike Dolan
What emerging economies lose on export competitiveness, he reckons, they can recapture at least partially in cheaper imports for their growing middle class of consumers.
The tricky bit is how to get everyone to move together and prevent market prices snowballing or governments overreacting.
Left to their own devices markets are unlikely to deliver the gradualism desired by most governments and faith in efficient pricing is at a low ebb after the credit crisis.
And, reading the runes well, money managers already see the opportunity and are stacking bets to exploit rising pressures.
EMERGING FX RUSH
David Shairp, strategist at JPMorgan Asset Management, reckons the move to emerging currencies could now accelerate.
"One of the implicit aims of liquidity injections by the core G4 is surely to facilitate a weakening of their currencies," he told clients this week.
Portfolio flows to emerging market equities are booming and emerging market debt denominated in local currency is currently one of the hottest fixed-income plays.
According to fund tracker EPFR, emerging market bond fund inflows, with local currency mandates taking more than half, have soared to almost $40 billion so far this year from less than $700 million in the first nine months of 2009.
Net flows to emerging market equities in the third quarter, at more than $30 billion, were some 50 percent up on the first six months of the year. And year-to-date inflows of almost $50 billion compare to a net exit from developed equity funds of almost $79 billion and an outflow of half a trillion from western cash funds.
The speed and stability of these portfolio streams may be a legitimate concern, but longer-term flows play the same tune.
ThomsonReuters data shows emerging market mergers and acquisitions this year, at $480 billion, were up 63 percent on the same period of 2009.
Crucially, this is not "hot" money.
"No one is sleeping on the job," Brazil's finance minister, Guido Mantega, said on Monday. "We risk having a trade war and that's the worry. (But) it is preferable that we take coordinated measures instead of isolated measures
www.reuters.com/article/idUSTRE6950OE20101006
Oct. 6, 2010