Currency War Driving Investors Eastward.

Written by admin on January 29th, 2012

As the worlds central banks wage the type of currency warfare that threatens to culminate in the financial equivalent of mutually-assured destruction, more and more investors are rushing into the higher-yielding assets of the emerging market economies. analysts say that the low growth offered by the advanced economies pales into insignificance when compared to the dynamism of the new powerhouses of Asia and Latin America.

Though economic recovery in the Western economies is obviously tailing off, the stimulus packages introduced by their emerging market counterparts to stave off the effects of the global recession seem to have gone a lot further. Theyre definitely getting a bigger bang for their baht, ringgit or rupiah, said an analyst. Consider that a US dollar converted into, say, a Thai baht 6 months ago to buy a stock in, say, PTT Chemical. Not only has that particular stock gained nicely but, were it to be sold today, the proceeds in Thai baht would buy almost 10 percent more US dollars such is the extent of the weakening currently being undertaken by US policymakers.

Where once emerging markets were regarded as a bolt-on option for the investor looking to gain a smidgen of high-risk/high-reward exposure, it appears that they are becoming more of a must-have in terms of asset allocation for many investment advisers. suggests that emerging market economies are forecast to generate as much as 85% of global economic growth over the next ten years. The firm is particularly enamored with Thailand and cites the strong performance of the economy which grew by an impressive 10% in the first half of 2010. The political unrest earlier this year hasnt deterred investment from overseas but there is evidence that this is being more than matched by domestic investment. The growing middle classes are feeling more confident in their economy and are subsequently putting their money where their mouths are, said the analyst.

Thai banks have fully recovered from the Asian financial crisis of the 1990s and are very well-capitalized thanks to stiffer regulations introduced after the turmoil. The countrys currency has appreciated markedly against the US dollar, the British pound and the Euro but the Bank of Thailand appears to be making no attempt to follow the example of many other nations by weakening it. To us, this looks as if Thai policymakers are banking on continued buoyant demand for its exports from China and fellow ASEAN member nations, concluded the analyst.

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