Currency Rout Spreads to Argentina, Venezuela, Egypt, Turkey and Ukraine

Devan Biswas
24 Jan, 2014
New York City

Emerging markets currencies and stocks accelerated the decline after the contagion rooted in Argentina spreads to Asia and Eastern Europe. Argentina and Venezuela devalued their currencies but more declines may follow as the official rates lag economic fundamentals.

[R]1:25 PM Miami – Emerging markets currencies and stocks accelerated the decline after the contagion rooted in Argentina spreads to Asia and Eastern Europe. Argentina and Venezuela devalued their currencies but more declines may follow as the official rates lag economic fundamentals.[/R]

World markets extended losses for the second day in a row as emerging-market currencies plunge on the rising chaos in Argentina, Thailand, Turkey, Ukraine and Venezuela.

Argentina devalued its currency to stem capital flight and lowered some of the restrictions for foreign currency transaction. The peso traded at 7.75 against one dollar but traded at 13.10 against a dollar in non-official transactions.

Argentina’s foreign exchange reserves has fallen to $29 billion at the beginning of the year from $52 billion.

Investors bid up the Argentina’s stocks market as the third best performing market with 88% gain in 2013 after inflation stayed as high as 25% a year.

Thailand’s baht stayed weak for the second day near 32.90 against one dollar after central bank left its key lending rate unchanged and escalating violence in Bangkok put investors on the defensive.

In the region, Philippine’s peso traded near its 4-year low as central bank was active in currency market to stem the fall.

Rupee in India closed down and fell 1.8% to 62.680 against one dollar in the week, its worst weekly performance since last August. On Friday, the rupee declined 1.2%.

Rupee was the victim of the currency market contagion as market fears spread around the world.

In Egypt, the pound was in focus ahead of more protests planned tomorrow and in black market the currency traded at 7.45 against one dollar.

The gap between the official and thin black market rate widened to 8% as the troubled nation faces $700 million a month shortfall.

However, Egypt is relatively fortunate to have other nations in the Persian Gulf support with a $7 billion of emergency financing and Dubai based Al Futtaim plans to invest $2.3 billion in retail chain.

Al Futtaim holds the Carrefour franchise in the Middle East.

Turkish lira dropped to a new record low and declined every-day of the year and fell 10% against the U.S. dollar in last five weeks of trading.

Lira declined despite the central bank selling $2 billion of foreign currencies as political crisis grinds on.

Ukraine’s hryvnia dropped nearly every day in the month so far and the currency declined to a record low of 8.45 against one dollar as protest turns violent in Kiev and central bank exhausted half of its foreign reserve this month.

Venezuela also partially devalued its currency on Wednesday and restructured its 11-year old currency control, created a second exchange rate and offered 11.3 bolivar against one dollar for certain transactions including remittances compared to official exchange rate of 6.3 to a dollar.

The central bank effectively created a dual-exchange-rate system after the overhaul. Unofficial rate on the street in Caracas is at least 90 to a dollar.

Venezuela’s 15-stock index was the best performing market index in 2013 with a surge of 453% after investors sought safety from an inflation surge of 56%.

Official data suggested food prices rose 7.5% in November and 6% in December.