This dynamic has been evident in the relative resilience of emerging market currencies, an important determinant of overall return for dollar-based investors. With a few notable exceptions, namely currencies in Malaysia and Indonesia, the currencies in most Asian emerging markets are holding up relatively well against the dollar, as Bloomberg data show. Even in China, despite all the hand-wringing over the recent devaluation, the yuan is down less than 3 percent against the dollar this year, according to Bloomberg data. In contrast, as the data show, currencies in Russia, Colombia, Turkey and Brazil have plunged this year.
Market Realist – Asian currencies have fared relatively well, compared to others.
The graph above shows the year-to-date (or YTD) performance of some emerging market (EEM) currencies against the US dollar (UUP). Commodity-exporting economies like Russia (RSX), South Africa, and Brazil (EWZ) have seen a massive depreciation in their currencies this year. This is because the currency tends to follow the trajectory of economic growth and the GDP forecasts do not look bright for economies dependent on commodity exports.
The Brazilian real has lost a third of its value against the dollar. The Russian ruble has lost 12.1% against the dollar YTD. Meanwhile, the South African rand has fallen by 14.2%. The Turkish lira has dropped by 22.3%.
Within emerging Asia though, currencies have not seen a big swing. The Chinese yuan has lost only 2.6% against the dollar YTD, and it’s one of the best performing currencies this year so far. The Indian rupee has dropped by 3.8% in the same period, while the Korean won has seen a depreciation of 6.6% against the dollar.
As we will explain in the next part of this series, most emerging Asian economies are major beneficiaries of low commodity (DBC) prices. This has led to only a muted depreciation in their currencies compared to those of commodity-exporting ones.