BRICs Biggest Currency Depreciation Since 1998 To Worsen

[kawaraj]

Investors are fleeing the four biggest emerging markets, known as the BRICs, after Brazil’s consumer default rate rose to the highest level since 2009, prices for Russian oil exports fell to an 18-month low, India’s budget deficit widened and Chinese home prices slumped. Investors are bracing for more losses as economic growth slows.
“I am quite bearish,” Stephen Jen, a managing partner at hedge fund SLJ Macro Partners LLP and a former economist at the International Monetary Fund, said in a phone interview from London. “When the global economy and capital flow slow down, it’s going to expose a lot of problems in these countries and make people stop and ask questions. A run on the currency could be particularly ugly.”
Ruble’s Retreat
Currencies from Brazil, Russia and India will probably decline at least 15 percent further by year-end, said Jen, the former head of global currency research at Morgan Stanley.
Brazil’s real lost 12 percent this quarter through June 22, the biggest drop among the 31 most-actively traded currencies tracked by Bloomberg. The 11.5 percent depreciation in the ruble and 10 percent drop in the rupee were almost twice the retreat in the euro. China’s yuan, which was kept unchanged during the global financial crisis in 2008 and 2009, fell 1.2 percent since March after the government widened the amount the currency is allowed to fluctuate each day.
The ruble sank 2.4 percent last week, while the rupee fell 2.9 percent to a record low against the dollar and the real dropped 0.8 percent.

more....

BRICs Biggest Currency Depreciation Since 1998 to Worsen - Bloomberg

“What we’ll see now is basically a full-blown credit problem,” said Rajpal, who predicts rising defaults in Brazil will resemble the collapse of the U.S. subprime mortgage market five years ago.
In India, Prime Minister Manmohan Singh is grappling with trade and budget deficits, corruption scandals and fighting in the ruling coalition. The country may become the first among the BRIC nations to lose its investment-grade rating, Standard & Poor’s and Fitch Ratings said this month. India’s budget gap amounted to 5.8 percent of gross domestic product, compared with 4.2 percent in Portugal and 3.9 percent in Italy, according to data compiled by Bloomberg.
China has cut its growth target this year to 7.5 percent, from the 8 percent goal that had been in place since 2005. Home values fell in a record 54 of 70 cities tracked by the government in May, while industrial production growth slowed to a three-year low in April.
In Russia, the price of Urals crude, the country’s main export blend, sank 26 percent this quarter. Russia relies on oil and gas for about 50 percent of its budget revenue.

 

[shuttler]

The fall of property prices in China is mainly due to the government's administrative measures in curbing speculation

 

[kawaraj]

China and Brazil have agreed a currency swap deal in a bid to safeguard against any global financial crisis and strengthen their trade ties.

It will allow their respective central banks to exchange local currencies worth up to 60bn reais or 190bn yuan ($30bn; £19bn).

The amount can be used to shore up reserves in times of crisis or put towards boosting bilateral trade.

China is Brazil's biggest trading partner.

"As international credit remains scarce, we will have enough credit for our transactions," Brazil's Finance Minister, Guido Mantega, said.

A global yuan?
The agreement is the latest in a series of similar deals signed by China with its trading partners.

In March this year, it signed a swap deal with Australia worth up to A$30bn ($31bn; £20bn) to promote bi-lateral trade and investment.

It has also inked currency pacts with Hong Kong and Japan.

Analysts said that Beijing has been trying to push for trade to be settled in yuan, rather than in US dollars, as part of its plans to seek a more global role for its currency.

"The motivation is to be less reliant on the US dollar," Sean Callow, chief currency strategist at Westpac, told the BBC.

"We will see firms in the two countries settle their accounts in local currencies," he added.

Mr Callow added that with an increasing number of economies signing such agreements with China, its plans for a more global role for the yuan had received a major boost.

"It is a big positive for China on that account."

BBC News - China and Brazil in $30bn currency swap agreement

 

[lcloo]

Appreciation or depreciation of currency in these nations are caused by hot money rather than reflecting their economic health.

Basically these hot monies are flowing back to US which is now consider as safe heaven for global investors since US economy is relatively stable (although at a low growth rate) and the stocks have seen their worst days of last few years.

Hot monies from US hedge funds, pension funds, speculators can easily affect exchange rates of currency when they injected billions of dollars into a country and pull them out after reaping profit, and move the money to another country for another investment run, or sent the money to a safe heaven in times of global or regional economic uncertainties as in current European debt crisis which is expecting to have global effect if things turn ugly. US is consider a safe heaven at this moment, one reason being it has seen its worst days since 2008 and not expecting to become any worst.

China is the least affect by these hot money because of government control as well as the size of China's economy and money supply which can easily absorb the impact.

 

[kawaraj]

yes China is least affected, but situation in Russia, Brazil and especially India are worrisome.

I'm afraid this EU crisis is fermenting and soon bring down all BRICs nations except China.

 

[manojb]

I thought INR was worst .BRL is still worst..
Last six months inr fell 8% while brl is 10% against usd..

 

[Chinese-Dragon]

yes China is least affected, but situation in Russia, Brazil and especially India are worrisome.

I'm afraid this EU crisis is fermenting and soon bring down all BRICs nations except China.

This is the time to see which nations are capable of living up to the BRIC name.

India has a bigger budget deficit than both Portugal and Italy. They are definitely the weakest link.

Which is why everyone has been suggesting that the "I" in BRIC should stand for Indonesia instead.

 

[manofwar]

This is the time to see which nations are capable of living up to the BRIC name.

India has a bigger budget deficit than both Portugal and Italy. They are definitely the weakest link.

Which is why everyone has been suggesting that the "I" in BRIC should stand for Indonesia instead.

Don't you know the meaning of "sustainable debt".............................

 

[Chinese-Dragon]

Don't you know the meaning of "sustainable debt".............................

When a "developing" country (India), has a bigger budget deficit than some of the worst performing "developed" countries (Portugal and Italy)... then something is seriously wrong.

 

[manofwar]

When a "developing" country (India), has a bigger budget deficit than some of the worst performing "developed" countries (Portugal and Italy)... then something is seriously wrong.

*sigh* nothing is wrong man, India is a socialist republic which means it isn't entirely depended on deficit spending, but still needs it for major projects........................
In India's case it's not so bad, cause this debt, unlike Italy or Portugal's ends up back to the consumer through govt owned companies

 

[Abingdonboy]

Oh give it a rest:

This is the time to see which nations are capable of living up to the BRIC name.

India has a bigger budget deficit than both Portugal and Italy. They are definitely the weakest link.

Which is why everyone has been suggesting that the "I" in BRIC should stand for Indonesia instead.

yes China is least affected, but situation in Russia, Brazil and especially India are worrisome.

I'm afraid this EU crisis is fermenting and soon bring down all BRICs nations except China.

I like the "especially India" part. This is a purely objective statement and not at all influenced by personal bias right? It's not as if India remains the 2nd fastest growing economy in BRICS right?!!

China's growth rate in the second quarter of the year is expected to dip below 7%. India's growth rate has tended to be, in general, two to three percentage points below that of China. If India were to grow at 5% in the second quarter, that should not be a great shock.

Brazil, another of the BRIC economies, grew by just 2.7% in 2011, down from 7.5% in 2010. The IMF projects growth in 2012 at 3%.

Among the BRIC nations, Russia alone is poised to maintain its growth rate in 2012 but that is because Russia has been growing in the past two years at a relatively slower 4%.

You can't say that China's growth has slumped because of 'policy paralysis'. China does not face the difficulties that a democracy does. To get a better clue to the slump, just see when was the last time that its growth rate fell below 7%. China's growth was 6.6% in the first quarter of 2009, which was the worst time in the sub-prime crisis, following the collapse of Lehman Brothers.

The ongoing eurozone crisis is similar in intensity and in the risk-aversion it has created in the markets. It must explain why China's growth has decelerated so acutely and also India's. It tells us that it is global factors that are primarily responsible for India's economy running into rough weather not coalition politics, lack of leadership, corruption, assembly elections or any of the things we have been hearing about.

Unfortunately, it's not just commentators who don't get it but rating agencies and a section of the business community. What the latter think does matter. Rating agencies impact the flow of capital into the country and the costs of borrowing. Animal spirits are everything in an economy and businessmen's prophecies of doom tend to be self-fulfilling.

S&P warned recently that India faces a downgrade in its rating if it does not get its policy act together. It had changed the outlook from 'stable' to 'negative' in April. Now another rating agency, Fitch, has followed suit and the reasons it has cited are almost the same as those advanced by S&P.

S&P has sought to articulate its case for a potential downgrade in a report tiled, Will India be the first BRIC fallen angel? A credit downgrade reflects increased possibility of default on debt. Where a nation's debt is overwhelmingly in domestic currency, the chances of default are lower because government can easily inflate its way out of high debt. It is high external debt that is cause of concern. India's external debt to GDP ratio of 3.4% must be amongst the lowest in the world. Does S&P believe that, in the absence of reforms, the probability of India's defaulting on foreign debt will rise?

S&P, India Inc overdoing gloom on economy? - The Economic Times

 

[IndoCarib]

When a "developing" country (India), has a bigger budget deficit than some of the worst performing "developed" countries (Portugal and Italy)... then something is seriously wrong.

Budget deficit in India is decreasing unlike in Italy or portugal

 

[kawaraj]

I like the "especially India" part. This is a purely objective statement and not at all influenced by personal bias right? It's not as if India remains the 2nd fastest growing economy in BRICS right?!!

you think too much. All BRICs nations are worrisome but some are dwelling on huge cash either by selling resources or merchandises, I was inferring this.

 

[Chinese-Dragon]

I like the "especially India" part. This is a purely objective statement and not at all influenced by personal bias right? It's not as if India remains the 2nd fastest growing economy in BRICS right?!!

LOL, the same dream.

First you guys say: "India is the 2nd fastest growing economy in the world!" - When that is clearly false.

Then you guys say: "Well, India is the 2nd fastest growing major economy in the world!" - Which is ALSO false.

Now you are reduced to saying "Well, at least we are the 2nd fastest growing economy in BRIC!"

The problem is that none of the other BRIC's are being downgraded left and right like India is. None of the BRIC nations (apart from India) have been warned by both S&P and Fitch that they will soon be downgraded to "junk" status.

 

[IndoUS]

Budget deficit in India is decreasing unlike in Italy or portugal

You can see the trend, 2008 is when the economic crisis hit the world, so the government had to spend money to easy the market. But over the year things have calmed down hence the reduction in deficit. Hopefully RBI takes some action, and the government opens up the market even more for investment.