Emerging Market Currencies

Transcript

1. Emerging Markets Currency Ray Ng Jun Rui
2. Agenda • Introduction • Current Outlook • Opportunities • Threats • China Construction Bank (Asia)
3. Introduction • Emerging Markets – BRIC nations • FX exposure of banks • Commercial banks deal in foreign currencies, holding assets and liabilities in foreign denominated currencies • Exposure to Foreign Exchange Risk
4. Introduction Factors affecting EM currencies • Political unrest • Global debt markets • Monetary policy • Commodity pricing
5. Current Outlook – Bullish Scenario • Crude Oil Price • Commodities Commodities Pricing • World economy growth • Improvements in EM fundamentals EM Growth Drivers • Economic and political reforms Political Drivers
6. Current Outlook – Bearish Scenario • Rate Hikes • Steepening yield Curve US Monetary Policy • Current Account Deficit • Slowing Chinese Growth EM Growth Drivers • Trade Protectionism Political Drivers
7. Opportunities • Diversification of portfolio • EM Carry Trades • Steepening Yield Curve Trade – Long Short Term Debt – Short Long Term Debt • “Reverse remittances" Brazil Russia India China 6.5% 7.25% 6.0% 1.75%
8. Threats • Political Instability • Foreign Exchange Risk • US rate hikes - Capital Outflows • Interest Rate Risk – EM Central Banks start to raise rates in response
9. Threats Brazil • Election Uncertainty in October Russia • RUB is closely related to crude oil and natural gas prices India • INR is on a managed float policy against the USD China • Slowing growth
10. China Construction Bank (Asia) Trends in FX Trading • RUB and INR are the 18th most traded currency in terms of daily forex market turnover with daily turnover of $58 billion • BRL is the 19th most traded currency in terms of daily forex market turnover with daily turnover of $51 billion
11. China Construction Bank (Asia) Opportunities FX Margin Trading • Currently offers 11 currencies for trading Foreign Exchange • Currently offers 12 major currencies, only ZAR and RMB classified as EM currencies Cross Border Transactions • Reverse Remittance Service
12. China Construction Bank (Asia) Threats • Liabilities - Chinese Yuan, FX Swaps, Forwards • Assets - FX exposure • Capital Outflows into EM