Rand, Shekel, Lira to Beat Zloty, Koruna on Europe's Debt Crisis, BNP Says

South Africa’s rand, Israel’s shekel and the Turkish lira will outperform eastern European currencies as investors shift assets to emerging markets less vulnerable to the debt crisis in western Europe, BNP Paribas SA said.

BNP advises clients to take “long” positions in the rand, shekel and lira while “shorting” the Hungarian forint, Polish zloty and Czech koruna, said Elisabeth Gruie, an emerging-market currency strategist in London. The recommendation contrasts analyst forecasts for a 12 percent rally in the zloty by yearend and 11 percent for the forint, outpacing 4.4 percent for the shekel and a loss of 0.3 percent for the rand, based on the median of estimates on Bloomberg late yesterday.

“The negative growth impact of the European debt crisis will affect the entire region,” Gruie said by phone. “Countries with the biggest exposure to Europe and its banking sector will be affected most and we’re likely to see their currencies weaken relatively more rapidly.”

The euro region’s most indebted governments led by Greece, Portugal, Italy and Spain are slashing government spending, causing concern that austerity measures will curb economic growth in the 16-member bloc.

European banks face higher borrowing costs on speculation government debt restructuring may erode capital and spark another credit crunch. The rate banks say they charge each other for three-month loans in dollars rose yesterday to a nine-month high.

Export Dependence

The Czech Republic relies on the European Union for 85 percent of its exports compared with almost 80 percent for Hungary and Poland, according to BNP. The EU accounted for 29 percent of South African exports in the first quarter, according to the nation’s Revenue Service. The bloc made up 33 percent of Israeli sales and 55 percent for Turkey, according estimates of BNP, France’s largest bank.

The bank’s trading recommendation is based on the “current theme in the market” prompted by the European debt crisis, rather than quarterly forecasts, Gruie said. A “long” is a bet that an asset will strengthen, and a “short” is a wager on depreciation.

The shekel is the only currency of 10 in Europe, the Middle East and Africa that has strengthened against the dollar this year, with a 0.3 percent advance. The rand has lost 2.8 percent and the lira has decreased 3.1 percent. The koruna is down 11 percent, the zloty has weakened 12 percent and the forint has depreciated 16 percent.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net

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