Over the last few weeks I’ve been completing my currency
forecasts for a few of the emerging market currencies that I skipped in my work
last year. As it turned out this was a topical subject. And in those currencies
I had originally considered, (Rupee, Rupiah, Real), there was a great deal more activity for a week or two than I had forecast.
So does this mean that my forecasts were wrong? I would say,
unequivocally, no!
In my defence, I always remind my readers that I am
submitting rolling 3 month forecasts that merely highlight broader trends and
very significant events, they doesn’t throw up all the daily and weekly animal
spirits of the markets. For that sort of detail, I am afraid, dear readers, you
must pay.
And, having gone back to the detailed source material, I can
confirm that every single one of the emerging market currencies was affected by
just one factor in late January early February.
And it isn’t over yet either. Furthermore, there are enough
factors combining in 2014 to suggest that we haven’t seen anything yet!
Many of the charts, and particularly the currency charts are
highlighting the period around April. Obviously some of the factors that will
be important then have already been activated in January, and the stories will
continue to unfold over the next two months. But there will be renewed vigour
to them by April.
Yet, before you all rush off and sell the same old, same
old, currencies again, I feel a few remarks are in order.
What I have found as I ploughed my way through each currency
forecast, and especially analysing the last three ( Rand, Rouble and Lira) in
quick succession, is that lumping all these countries together is a big
mistake. Yes, it allows bored senior investment bankers to come up with neat
acronyms and, yes, it is pretty much the simplistic approach you might expect
from a load of junior traders who have probably not been further than Ibiza or
Atlantic City, but it fails completely to acknowledge that all these countries
are vastly different.
In layman’s terms, in order to successfully forecast one
must have a thorough understanding of the history and the culture of a
country. Yes, current politics is
useful, and so are a grasp of recent events and economics, but nothing beats
that deep historical and cultural context.
And I’d even go as far as to say that you can’t really understand a
country until you’ve considered its geography ( climate, geology and location);
without those there would be no history and culture.
But I digress. What I was trying to say is that each country
and currency is different and when making investment decisions should be
treated as such.
My analysis has revealed striking differences in the
conditions of, and prognoses for, each country and thus each currency
And it looks like the broader investment community might be
beginning to be a bit more discriminating, as the currency valuation pathways
for March to May look as if they will vary considerably between countries.
Furthermore, I caution against assuming that what happens
over these few months is establishing a trend for the latter part of 2014 and
2015. Some countries are going to settle down, but others are going to be more
problematic.
I suggest a review of my individual forecasts for the details.
Dates to watch, the whole period into May is tricky, though
the emphasis will shift from region to region as the weeks progress.
Particularly key dates are :
the first few days of March
18th-34 March
31 March
14-15th April
21st- 23rd April
27th April
And the order of concern for currencies in the coming 4
months
Bolivar
Rand
Argentinean Peso
Turkish LiraRupiah
Rupee
Dollar (i)
Euro (i)
Sterling (i)
Yen
Renminbi (ii)
Rouble
Mexican Peso
Real
South Africa – Change of leadership
India – Change
Indonesia – probably no change
Turkey – hard to call – could be deception surrounding the
vote. Possibly no change
Brazil – quite a lot of challenge in run up but probably no
change in the end.
Comments