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Indonesia's rupiah drops to four-year low after weak bond sale
Amid concern about the effects of Fed tapering, if and when it happens, Indonesia's rupiah has fallen to its lowest level since March 2009 after the government sold $190M of dollar-denominated bonds, well short of the goal of $450M.
The USD-IDR is +0.4% at 11790 rupiahs.
"We expect to see the rupiah weakening, keeping in view the Fed-tapering risk," says currency strategist Andy Ji.
It's worth paying another 50 or 60 basis points in expenses for a good ETF product not tracking a vanilla index, says RiverFront Investment's Rod Smyth at a Barron's ETF roundtable. One favorite in emerging markets is PowerShares' FTSE RAFI Emerging Markets Portfolio (PXH) which tilts towards factors like book value and cash flow and offers bigger weighting to sectors like energy. Bullish on Japan, his pick is WisdomTree's Japan SmallCap Dividend Fund (DFJ). Another favorite is PowerShares' FTSE RAFI Developed Markets Ex-U.S. Portfolio (PXF).
India is partnering with other emerging market countries to plan a join intervention aimed at halting the rout in their currencies, reports Reuters, citing senior Indian finance ministry official Dipak Dasgupta.
"It's is going to happen in a matter of days rather than weeks ... Brazil and India can start the move," he says, without making clear exactly which countries are joining the effort.
Meanwhile, AMP Capital - Australia's 2nd largest money manager - tells the WSJ it's slashed its emerging markets exposure to "zero" as the Fed readies an end to its liquidity binge.
"Currencies have to go where the market wants them to go," says Marketfield Asset Management's Michael Shaoul, speaking about emerging markets. Central banks have been doing everything from hiking rates and selling dollars to imposing capital controls, but at some point they may need to step aside and let their currencies fall.
If so, writes Brendan Conway, cheap emerging markets stocks still aren't cheap enough. In today's action: EEM -2.3%, VWO -2.5%, DEM -2.1%.
Asian central banks cut reserves to fight tumbling currencies
Forex reserves have been falling at Asian banks as they have attempted - not so successfully - to bolster their weakening currencies, which have been suffering partly from the Fed's talk of tapering. Six out of the 10 banks with the largest holdings have cut their reserves this year.
The Bank of Indonesia's holdings have plunged a record 18% in 2013, while the rupiah has dropped 12%. The Reserve Bank of India's holdings have fallen 4% as the rupee has dropped 12%.
The trends threaten currencies that central banks bought as they looked to diversify their reserves beyond the U.S. dollar in past years, including the euro, the Swedish krona, the Norwegian krone, the South Korean won, and the Australian and Canadian dollars.
Fed officials not persuaded to consider taper fallout on EMs
Fed policy makers have rejected calls to take the recent turmoil in emerging markets into account when deciding on when and how reduce the bank's QE program. The fallout from the prospective tapering was a hot topic of discussion at the Fed's Jackson Hole annual get together over the weekend.
"We only have a mandate to concern ourselves with the interest of the United States," Dennis Lockhart said.
"They were complaining about us easing too much," James Bullard said. "Now when we start to talk about taper they're complaining about too tight of a policy. They have an independent monetary policy and they have to use that to manage" their own economies.
Emerging-market currencies have continued to suffer losses following the release of the latest FOMC minutes yesterday, which provided little clarity about when the Fed might start tapering its QE program but left the market expecting that it will be next month.
Ten-year Treasury yields are +2 bps at 2.916%. The recent spike in U.S. debt yields has caused borrowing costs to rise globally, which, along with the rising dollar, has not been healthy for emerging markets with large current account deficits, such as India.
USD-INR is +0.5% at 65.045 Indian rupees, with the currency hitting a new low of 65.55 earlier.
USD-TRY +0.4% at 1.9861 Turkish lira, with the currency hitting a new low of 1.9886 earlier.
The iShares MSCI Emerging Markets ETF (EEM) slips 0.7% premarket after a 5.5% plunge in Indonesia led Southeast Asian stocks lower overnight and India continues to head south. The EEM is off 11.4% YTD, underperforming the S&P 500 by nearly 2800 basis points.
Maybe more worrisome is the move down in emerging market currencies, writes Enis Taner. In the last 5 such episodes, the S&P (SPY) also fell by at least 7.5% "Ignore the continued weakness in EM currencies at your own risk."
"The market is in panic mode into nonfarm payrolls," says SocGen's Guillaume Salomon of emerging market currencies (CEW). The South African rand (SZR) continues to lead the way down, off 2% vs. the greenback, but also off today is the previously stalwart Mexican Peso, -1%. "The thing to remember is the exit door - whatever emerging market you're talking about - is always relatively narrow."
Datatec (DTTLF.PK), the South African computer-networking firm which primarily installs Cisco (CSCO) products, is "a pure rand hedge" for South African rand investors, according to CEO Jens Montanana. The company's share price rise is correlating .85 (1.0 would be perfect) to the fall of the rand vs. the U.S. dollar. Montanana says the company is beginning to consider U.S. acquisitions. Related ETFs: AFK, CEW.
Guggenheim announces the closing of its Chinese Yuan bond ETF (RMB), effective June 14 as the fund failed to generate significant investor interest since its 2011 launch. The fund’s May dividend distribution will be suspended which should maximize the amount shareholders will receive at liquidation on or about June 21st.
Guggenheim's CurrencyShares Singapore Dollar Trust (FXSG) is the 1st ETF tracking the Singapore dollar. The ETF holds foreign currency deposits rather than derivatives, rising when the U.S. dollar weakens relative to the Singapore dollar. FXSG comes with an expense ratio of 0.40% - standard for CurrencyShares ETFs, but cheaper than other currency ETFs UUP (0.50%), CEW (0.55%), INR (0.55%), BZF (0.45%), CNY (0.55%), ERO (0.40%) and ICI (0.65%). (pdf)
Pimco has rolled out its Foreign Currency Strategy ETF FORX, which is a portfolio of currencies and local currency bonds actively managed to help investors diversify out of the dollar and preserve their purchasing power. Competitors: UDN, UDNT, ICI, CEW
CitiFX reports a new low in its Emerging Market Currency Positioning Indicator, not significant for its size, but because managers are typically net long EM. Among the largest short positions is in the real (BRL).
Only 90 days ago warning of "currency wars" and intervening to weaken their currencies, emerging nations are now moving to prop them up even as growth concerns begin to overtake inflation worries. "Policymakers have to try and strike a very careful balance," says Standard Chartered's Callum Henderson.
A round-up of the performance of key ETFs shows Treasurys (TLT) as the only one down for the year, even as government paper had the best performance of any during April. Worst in April, but highest YTD are the financials (XLF), with the REITs (VNQ), S&P 500 (IVV), and Emerging Equity (EEM) rounding out the top 4. Was April just a pause in risk, or the start of a trend?