I just had a long chat with Michael Craig at Sprott Asset Management in Toronto. He is in a select group of fixed income market participants who enjoyed my mellifluous tones and dulcet New York accent as I was his sales coverage in my time at TD Securities. He has a particular focus on FX and agreed that I could attribute these comments to him.
He thinks that the problems in Emerging Market currencies are not some one off problem but are thematic and reflect the structural problems in those countries involving their current account balances. He also noted that growth rates in the developing world are slowing while growth rates in the developed world are increasing. That convergence will not motivate investors to place new moneys into those markets.
He notes the recent weakness in the Hungarian Florint and the Poland Zloty. There is some real inside baseball stuff here. Each of those currencies have been reasonably stable until now and what he has heard is that participants are selling winners and selling winners in places in which they can find good liquidity. He also mentioned that Hungary faces a bond maturity on Monday and Templeton owns 20 percent of that bond. The market is speculating that those funds will seek safe sanctuary in some home other than emerging markets and that has weighed on the Florint, too.
Finally, he remarked that Mexico has traded well relative to its cousins as participants view Mexico as tethered to the US and benefits from perceptions of comfortable but not robust growth in the States. It is not tethered to China and does not suffer as that nation’s GDP slows from its previously frantic growth.