Despite an apparent belief among the US mainstream media that ‘taper’ is priced in, Saxo Capital Markets warns that Emerging Market countries with large current account deficits like Brazil, India, South Africa, Indonesia, and Turkey face increasing problems. As the following chart shows (and highlghted most recently by Brazil’s highest FX outflows since 2002!) could see their currencies weaken even further if the Fed’s taper plans result in a deterioration of global risk appetite.
Think it will be different this time? Think again – Brazil just saw its largest outflows since 2002!!!
Dollars flowed out of Brazil in 2013 at their largest volume in more than a decade amid growing investor risk aversion and shifting capital movements around the globe.
The country’s central bank Wednesday reported net dollar outflows of $12.3 billion, compared with net inflows of $16.8 billion the previous year, and the largest outflows on record since 2002. The outflows were also the country’s first reported since 2008, when net dollar outflows totaled $983 million.
The central bank reported the country posted $8.8 billion in net dollar outflows in December alone.
The net currency outflows in 2013 were led mainly by investment outflows, which reached $23.4 billion. That was down from $8.4 billion in net investment inflows the previous year.
“Every bit of good economic news for the U.S. has been problematic for the rest of the world,” said Mr. Galhardo. “It’s hard to see good news on the horizon that will alleviate the pressure on the real in the short term.”
The dollar outflow trend has been compounded, meanwhile, by growing scrutiny of Brazil’s fiscal health and heightened investor risk aversion.
Source: Saxo Capital Markets