A suddenly strong U.S. dollar is claiming rival currency
victims throughout the emerging world. Earlier this week, the
Indian rupee touched a record low against the greenback. Forwards
on the Indonesian rupiah fell to multi-year lows and the currency
has weakened so dramatically, so rapidly in Southeast Asia's
largest economy that the
central bank there raised interest rates
Apparently, emerging markets currencies do not like the
May-June time frame. In 2012, May was the worst month of that
year for developing world currencies as investors bid the dollar
up due to concerns about Europe's sovereign debt crisis. In fact,
last year's decline in emerging market currencies was, at the
the worst since 1998
during the Asian sovereign debt crisis.
It is hard to say things look any better this year. Actually,
the situation might look worse. For example, WisdomTree Indian
Rupee Fund (NYSE:
), which tracks a currency
some view as undervalued relative to the
, has tumbled five percent in the past month.
But before investors rush to further repudiate bahts, pesos,
reals, rupees, rupiah and others, they may want to consider if
the punishment these currencies have recently endured is too much
"In May 2013, we believe investors should not confuse a
broadly stronger dollar with an anti-EM position," said
WisdomTree Portfolio Manager Rick Harper in a new research note.
"With some positive economic surprises in the U.S. and some
concerns in emerging market countries such as South Africa and
Turkey, we believe the market has moved too far too fast."
There might be something to that assertion. Consider the fate
of the WisdomTree Dreyfus Emerging Currency ETF (NYSE:
), an ETF comprised of "Mexican Peso, Brazilian Real, Chilean
Peso, Colombian Peso, South African Rand, Polish Zloty, Russian
Ruble, Turkish New Lira, Chinese Yuan, South Korean Won,
Indonesian Rupiah, Indian Rupee, Malaysian Ringgit, Philippine
Peso and Thai Baht,"
according to WisdomTree
CEW allocates weights to those currencies ranging from 6.38
percent to the rand at the bottom to 6.95 percent to the zloty at
the top. In other words, this is basically an equal-weight ETF
and equal-weight does not always work when a significant
percentage of the fund is being taken task.
No one should feel sorry for the ETF, but this is what CEW has
had to deal with in recent weeks: Labor strife in South Africa,
anti-government protests in Turkey, the baht and Philippine peso
falling to new 52-week lows against the dollar, the rupee's
record low and the Brazilian real
hitting a four-year low
Those currencies combine for about 38 percent of CEW's weight
and they have all been hampering the fund at the same time, a
rare set of circumstances, but one that might spell
"Ultimately, we believe this moderation in performance could
be a long-term buying opportunity for income-minded investors.
Although this time may indeed be different, we believe that
allocating a portion of investor portfolios to emerging market
currencies and debt could serve as a means of diversifying risk
and enhancing yield over the longer term,"
Before running to sell emerging markets currencies right now,
remember that after June 2012, 11 of 18 major developing world
currencies finished the year noticeably higher. CEW gained almost
10 percent from June 2012 through January 2013.
For more on
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