Skip to main content

The Globe and Mail

Tracking the carnage in emerging markets currencies

ROB Insight is a premium commentary product offering rapid analysis of business and economic news, corporate strategy and policy, published throughout the business day. Visit the ROB Insight homepage for analysis available only to subscribers.

Investors who had moved from developed countries to emerging markets in search of yield got an ugly surprise last month, after sharp declines in exchange rates cut deeply into returns. A close look at the recent performance of the main free-floating emerging-market currencies (ie. not China's, whiose value closely follows the U.S. dollar) highlights one exchange rate where Canadians should pay attention: the South Korean won.

Developing world currencies are rising Monday but they have a long way to go to make up for the damage caused in May. The rising U.S. dollar caused an almost seven per cent decline in the iShares JP Morgan Emerging Markets Bond ETF (U.S.), one of the largest in the sector.

Story continues below advertisement

For individual countries the biggest losers were the Brazilian real (-6 per cent), the Mexican peso (-5.2 per cent) and the Russian ruble (-5.2 per cent). (See chart.)

The decline in the South Korean won was smaller at 2.4 per cent, but more interesting for Canadian investors. Because South Korea is a central Asian trading hub and an integral part of the global manufacturing supply chain, South Korean assets have often provided a leading indicator for Canadian assets and the Canadian dollar. In May, it was the emerging markets currency with the closest correlation to the loonie.

The sell-off in developing world currencies was part of a violent global market reaction to the spike in U.S. interest rates. The hope is that Treasury markets will stabilize and offer rate-sensitive assets, including emerging market currencies, a chance to recover lost ground. For Canadians, the won is among the best indicators to watch.

Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights , and follow Scott on Twitter at @SBarlow_ROB .

The Globe is launching a Streetwise and ROB Insight newsletter, with content available exclusively to Globe Unlimited subscribers. Get the best of our exclusive insight and analysis delivered straight to your inbox in a daily e-mail curated by our editors. Sign up for it and other newsletters on our newsletters and alerts page .

Report an error Licensing Options
About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.