By Michael O'Boyle and Christine Murray
MEXICO CITY Feb 19 Emerging market currencies
weakened on Wednesday after minutes from the last U.S. Federal
Reserve meeting suggested policymakers would keep up the pace of
a withdrawal of monetary stimulus.
Meanwhile, Ukraine's bond prices fell as more violence hit
Kiev, while mounting unrest in Venezuela drove the price of its
credit default swaps to near five-year highs.
Emerging market assets have slumped since last May on
expectations that less monetary stimulus will drive up U.S.
yields and pull back a tide of investment that had flooded into
emerging markets in recent years.
Minutes of the Fed's Jan. 28-29 policy meeting, released on
Wednesday, showed several officials wanted to drive home the
idea that their asset-purchase program would be trimmed in
predictable, $10-billion steps unless there is a big economic
surprise this year.
Mexico's peso and the South African rand, two
of the most liquid emerging market assets, slipped to their
weakest levels in nearly one week after the Fed minutes.
Many emerging market currencies had steadied in February
after sharp drops in January, but views on the Fed could drive
more selling, analysts said.
"I think we are back to selling emerging markets," said Win
Thin, an analyst at Brown Brothers Harriman in New York. "The
tapering is unfolding and at some point we have to talk about
rate hikes. That is the next shoe to drop."
Chile's peso posted its bigest decline against the
dollar in more than two weeks, the day after the central bank
cut interest rates by 25 basis points and maintained its bias
towards more easing as the top copper exporter's economy runs
out of steam.
Turkey and Brazil have been raising interest rates to
support their currencies and fight the risk that higher import
prices could drive up inflation.
Analysts note that easy money policies from the Fed had
driven gains in emerigng market assets across the board as
investors sought out higher yields.
But the witdrawal of that global liquidity is now exposing
emerging markets with political and economic problems.
Worries about Argentina and Turkey sparked indiscriminate
selling of emerging market assets in January but analysts said
problems in the Ukraine and Venezuela would not spark a similar
global selloff. Some even see signs of a bottom.
"We think that this is a temporary situation that will not
last," veteran investor Mark Mobius, chairman of Templeton
Emerging Markets Group, said at a conference in Mexico City.
"We're nearing the bottom of this exodus."
UKRAINE, VENEZUELA PROTESTS
Protesters poured into a central Kiev square on Wednesday, a
day after at least 25 people were killed in demonstrations.
Protests that began in November have hit the
Ukraine's heavily indebted economy and drained the central bank
of foreign reserves.
Russia is a key supporter of Ukraine's government, but has
so far agreed to pay only $2 billion of a promised $15 billion
aid package. Protestors are demanding Ukraine embrace a
wide-reaching trade deal with the European Union, over Russia's
Prices for Ukraine's dollar bonds fell, with the 2020 dollar
bond down 0.41 cents of a dollar while the bond
maturing in 2023 hit an all-time low. The
hryvnia currency fell to a fresh five-year low.
Bank of America Merrill Lynch said Ukraine could face a
liquidity crunch in the next few months, noting the country has
mounting debt payments while foreign reserves are at an
eight-year low after the central bank spent about 8 percent of
its reserves on currency intervention in January alone.
While mounting violence in Ukraine is troubling on many
levels, Mobius said worries that it could wreck the economy are
"Despite all the bad news that you hear about Ukraine
actually they're in a very sweet spot" economically, Mobius
said, noting that "they have the Europeans who want to help them
and they have the Russians who want to help them."
Neighboring Russia saw its rouble hit an all-time low versus
the euro after the finance ministry said it plans to
buy nearly $6 billion in foreign currency to replenish one of
its sovereign wealth funds.
The benchmark MSCI equity index dipped 0.19
percent with strong Chinese stocks countering negative sentiment
from Ukraine and Russia.
Student-led protests in Venezuela over issues including
inflation, crime, corruption and product shortages continued to
flare after security forces arrested opposition leader Leopoldo
Lopez on Tuesday.
Investors reacted by driving up the cost of insuring
Venezuela's debt for five years to its highest since April 2009
Debt prices have fallen to levels often associated with a
nation at or near default. Still, Venezuela's vast oil reserves
have lent support, giving investors comfort they will be repaid.
For CENTRAL EUROPE market report, see
For TURKISH market report, see
For RUSSIAN market report, see )