By Chiara Albanese
Some emerging-market currencies are sliding, rekindling memories
of heavy selloffs driven by shifts in U.S. interest-rate
policy.
Turkey's lira has slumped to its weakest point since March, and
the South African rand has matched its low point from February,
both taking a hit against the dollar with a week to go before the
U.S. Federal Reserve announces its latest monetary-policy decision.
The central bank is expected to end its bond-buying program in
October, and growing expectations that the Fed could go further and
tee up a rise in rates in the first half of 2015 are driving the
decline in emerging-market currencies.
Investors expect the weakness to persist for now, but don't
predict a shakeout on a scale to match the so-called 'taper
tantrum' shocks that came when the Fed last year first pointed to
the possibility of tighter U.S. monetary policy.
"Compared to the taper tantrum, where we had expensive
valuations and vulnerable fundamentals, we are in a much better
position," said Paul McNamara, who manages $6.5 billion in
emerging-market debt at GAM in London. "We are watching and waiting
for the point where things cheapen up and we want to buy more. We
are looking for bargains."
The South African rand has lost about 3% so far this week, with
a dollar worth 11.016 rand Wednesday. The Turkish lira slumped by
almost 4% against the U.S. currency over the last few days to trade
at 2.2133.
"Recent volatility has acted as a reminder to holders of
emerging markets that were complacent picking up the yield
associated with the asset class and investors need to discriminate
more about what they own, " said Daniel Wood, fixed-income
portfolio manager at Fischer Francis Trees & Watts, with about
$13 billion in assets under management. Mr. Wood said he was
positioned for this selloff and has taken profits on bets against
the lira and rand.
The Hungarian forint has also been hit, trading at its weakest
level against the euro since the start of 2012, dented by
geopolitical tensions in Ukraine and extra low interest rates that
make it a less appealing investment.
Citigroup, the world's largest currencies dealer, noted
Wednesday that the slide in emerging-market currencies is
accelerating. Analysts and investors agree there is no single
trigger. "This is all happening very fast," said Citigroup's
emerging-market analyst Luis Costa.
"We could go back once again to the concept of 'Fragile Five'
currencies, even if this is undeserved as the macroeconomic picture
in South Africa, Turkey and Brazil has improved," said Viktor
Szabo, portfolio manager at Aberdeen Asset Management, a firm with
GBP322.5 billion (around $520 billion) of assets. Markets in those
three countries, plus India and Indonesia, have previously felt the
full force of Fed-inspired selloffs.
The pace of decline is more measured this time around--several
vulnerable currencies dropped by as much as 17% between the end of
last year and the start of February. The more sedate pace reflects
action taken by authorities in key emerging markets, such as
Turkey, to raise interest rates early this year to keep foreign
cash flowing in despite U.S. tightening.
"You get road bumps. It's volatility for the moment, rather than
a full-blown selloff. The market had a good run, and volatility
probably undershot, so now it's catching up," said Mr. McNamara at
GAM.
French bank Société Générale thinks some declines have already
run their course. Analyst Benoit Anne at the bank Wednesday advised
his clients to buy the rand against the dollar.
Write to Chiara Albanese at chiara.albanese@wsj.com