SocGen Says Italy to Spur ‘Mini-Meltdown’ in Emerging Currencies

Developing-nation currencies will extend declines as Italy’s election stalemate spurs concern that the euro-area’s debt crisis will deepen and weaken global economic growth, according to Societe Generale SA.

“For the time being, emerging-market assets have been rather insensitive to the trouble brewing elsewhere,” Benoit Anne, the London-based head of global emerging markets strategy at SocGen, wrote in a client note yesterday. “This worries me as this could actually trigger some painful catching-up down the road,” and a “mini-meltdown” in currencies, he wrote.

Russia’s ruble and the Indian rupee led declines in emerging-market currencies yesterday as the lack of a clear result in Italy’s election prompted investors to sell higher-yielding assets. JPMorgan Chase & Co’s Emerging Market Volatility Index, which reflects investors’ expectations of currency fluctuations, rose to 7.71 percent yesterday, the highest level since October.

Investors should sell more volatile currencies, such as the Hungarian forint, South African rand, Mexican peso and South Korean won, Anne wrote. Investors can also bet greater currency swings, he wrote.

There’s a 75 percent chance of a “serious sell-off” in developing-nation assets, and a 25 percent chance of a “strong” rally, Anne wrote.

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