Currencies to Watch Out for After Fed Liftoff? Ruble and Liraby
Bank of America outlines impact of Fed on emerging markets
Russia and South Africa exposed, Turkey and Poland protected
As the hype from the Federal Reserve’s historic liftoff dies down, a picture is forming on which emerging market will suffer the most and which ones are safer bets.
For Bank of America Corp., in a report released Thursday, the first U.S. interest rate rise in almost a decade shifts concern back to China’s rate of growth and slumping oil prices. The currencies that will fare the best are those the least affected by either.
Losers? The Russian ruble and South-African rand. Winners? The Turkish lira and the Polish zloty. Let’s take a closer look.
* Ruble, Rand:
Brent crude trading at less than half its five-year average is bad news for Russia, which gets about half its budget revenue from exports of oil and gas. Since oil began tumbling from this year’s high in May, the ruble has posted the second-biggest decline in emerging markets, having retreated 28 percent. The rand is next up with a 20 percent decline since May.
* Lira, Zloty:
Turkey is benefiting from a falling current account deficit as a slump in oil prices reduces the costs for a country that imports most of its fuel. The lira, the world’s worst-performing currency earlier this year, was the emerging-market currency that jumped the most after the Fed decision amid optimism cheaper fuel may offset the nation’s vulnerability to higher U.S. borrowing costs and that the pace of further rate increases will be gradual.
Unlike Russia and South Africa, Turkey and Poland are relatively immune to China: The world’s second-largest economy is not a primary export destination for either country. Every percentage point decline in China’s economic growth cuts growth in Turkey and Poland by 0.1 percentage points, according to Bank of America.
The effect on Russia -- as much as a 0.7 percentage point decline in growth, and South Africa -- an 0.3 percentage point retreat in gross domestic product -- is much more pronounced.
The Polish zloty has retreated 2.8 percent after the country’s conservative opposition swept to power in October vowing a shift in policy. Societe Generale said last month that political risks were priced. More importantly, Central Europe’s largest economy is supported by robust domestic demand and has limited exposure to China.