Political Risk Latin America Blog @PolRiskLatam

EM currencies: why so stable?

Posted in News and Articles, Political Risk by politicalrisklatam on February 18, 2011

by Ranjit Lall for Financial Times – Beyond Brics, February 18th, 2011.

With billions of dollars flowing out of emerging market equity funds since the start of the year, it’s something of a surprise that currencies – which tend to be highly sensitive to capital flows – have remained so stable.

What’s behind this puzzling trend? Most analysts agree on three factors: the resilience of bond flows into emerging markets, aggressive intervention in currency markets by central banks, and positive investor sentiment towards the emerging world.

The first factor is probably the most important. While equities make up the lion’s share of assets held by investment funds in emerging markets, they’re not the whole story. Bond holdings totalled almost $120bn in the month to 16 February, compared to $343bn for equities, according to data from fund tracker EPFR Global. (continue reading… )

 

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