Are Emerging Market Currencies Signaling the Next Crisis?
By Brad Lamensdorf and John Del Vecchio
Emerging market currencies are imploding.
A quick look at the JP Morgan Emerging Market Currency Index shows the basket of currencies in freefall.
Why might this matter?
Well, 20 years ago a little currency few people had ever heard of called the Thai Baht brought the world to its knees for a period of time. That crisis interrupted the bull market for stocks and created a great deal of unrest.
The difference today is that the impact of emerging markets is much greater. In many cases, emerging markets are the growth engine of the world. And, the stiff deterioration in currencies is a warning sign. Just look at places like Venezuela with massive inflation and civil unrest.
Emerging markets are more important today than they were 20 years ago. The equity markets have been lulled back into a sense of complacency after a minor blip this February. But, there are numerous warning signs under the surface that investors should be concerned about.
Low volatility, market valuations, record low cash positions, optimistic sentiment, and now troubling currency trends are sounding the bell to be more vigilant in one’s portfolio.