Currency Risks Could Grow in Emerging Markets

April 1, 2014 Leave a comment

March 20, 2014, 5:24 PM ET
Currency Risks Could Grow in Emerging Markets
EMILY CHASAN
Corporations could be entering a new phase of currency volatility. Emerging-market currencies in countries such as Argentina, India and China could have a bigger impact on earnings in the coming years.
“In the very long term there’s a good reason to invest in emerging markets, however in the next few years I think we’ll see a lot of volatility,” said Bilal Hafeez, Deutsche Bank AG’s global head of foreign exchange strategy.Over the past year, companies have seen sharp devaluations in Argentina andVenezuela and a slump in the Indian rupee. Last month, the Chinese yuan hit a six-month low against the dollar amid concerns of an economic slowdown in that country. And fluctuations against the yuan could widen because China’s central bank this month loosened daily trading limits, allowing the currency to move up or down by 2% daily.
“We’re in a very unique time from a China standpoint and that’s going to cause some greater heartburn for corporates over the next couple of years,” said Andy Gage, vice president of strategic market development for FiREapps, a foreign exchange risk management company.
While companies in the past may have only hedged their top currency exposures, some are already looking to hedge smaller exposures in emerging markets.
“There has been a general tendency by corporates not to hedge their currency exposure in emerging markets, because there’s this notion that if [those countries] are growing then almost necessarily their currencies should appreciate,” Mr. Hafeez said. In a more volatile world, that may not be true any longer he said.
Some companies will respond by hedging more or trying to raise prices, said Amit Singh, assistant treasurer for risk management at Pfizer Inc.PFE +0.85%
“If a firm is in an enviable industry where they can pass on the pricing increase… that’s great and you don’t need to hedge, but that’s likely not the case for most of us today,” Mr. Singh said.
Danone SABN.FR -0.03% told investors last month that currency volatility in emerging markets was increasing expenses, forcing it to work on cost reductions and price increases. The company, for example, has already passed along some price increases in Brazil, where the real fell 13% against the dollar last year.

Filed under Macro Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a comment