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No quick fix for Fragile Five

Wednesday, Jan 29, 2014 - 02:06

Jan 29 - South Africa follows on from Turkey and India by raising its key interest rates in a bid to quell the turmoil in emerging markets. Turkey's 4.25 per cent hike stunned investors, and pushed the Turkish lira to its biggest gain in five years as investors welcomed the news. But, as David Pollard reports, worries soon began reappearing over whether emerging markets are doing enough to stabilise their economies.

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With a wave of tightening racing around the globe like the sun, South Africa followed Turkey and India with a hike of its own. Bond markets there have seen heavy outflows recently, the rand nudging five-year lows against the dollar. A strike by 100,000 platinum miners is also dulling investor appetite. Economist George Glynos. (SOUNDBITE) (English) ETM ANALYTICS CHIEF ECONOMIST, GEORGE GLYNOS, SAYING: "We've been listed in the Fragile Five for a reason. We are a fragile economy and we render ourselves vulnerable to offshore sentiments and the vagaries of global financial markets by virtue of the fact that we are so dependent on foreign funding" The Fragile Five is becoming the label of choice for South Africa, Brazil, Indonesia, India - and Turkey. It stunned markets earlier with a massive hike - propelling the Turkish lira to its biggest gain in half a decade. Though it soon pared that gain. And some, like Robert Halver of Baader Bank, questioned the wisdom of the move. SOUNDBITE (German) TRADER WITH BAADER BANK, ROBERT HALVER, SAYING: "It could damage the economy massively. It stops the currency fall at first, but there will be less credit and the nice economic growth of Turkey is very much in danger." Emerging markets are faced by an unholy trinity: a slowdown in China, tapering by the U.S. Federal Reserve, and instability in the countries themselves. Reuters Forex analyst, Neal Kimberley, says the exodus of capital has been a long time coming. SOUNDBITE (English) NEAL KIMBERLEY, REUTERS FX ANALYST, SAYING: ''The market is looking at emerging markets en masse, and they don't like what they see. And it's the same old thing. Money can spend ten years going into emerging markets, It tries to get out in five minutes.'' And if the outflow gathers pace, so too demands for more action, says Tom Vosa of NAB. SOUNDBITE (English) NAB GROUP HEAD OF MARKET ECONOMICS, TOM VOSA, SAYING: ''All over the world, we're seeing pressure on emerging market central banks to control those inflationary pressures, to reduce those current account imbalances, and to self-ensure against what we expect will be further Fed tapering." It has been suggested the Fed should ease back on tapering while emerging markets settle. But that's not expected to happen - further turmoil in the Fragile Five is. ///////////////////////////

No quick fix for Fragile Five

Wednesday, Jan 29, 2014 - 02:06

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