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OPINION

Bombed out bargains

Bombed out bargains
July 30, 2014
Bombed out bargains

There is always money to be made from reorganisation and dramatic change and the practice often has negative connotations; Argentina calls them 'vultures', others branding them 'not socially useful' practices. Steering clear of perpetual pariahs like Venezuela, long time sick man Iran (now in the process of rehabilitation) or Cuba, closer to home there might be rich pickings.

This year governments and central banks attempted to weaken their currencies in order to gain a competitive edge. Some have done this willingly, like Japan and China, others have had it thrust upon them, which was the case in Russia and Australia, and others such as Brazil and Norway simply didn't see it coming.

FX as an asset class is currently being pushed by exchange-traded product providers (because it has been more volatile than their traditional territory), but it is really an overlay affecting the value of every single thing in those nations. This year's biggest losers are, in ascending order (of currency weakness): the euro (-10 per cent), Norwegian krone, Australian dollar, South African rand, Turkish lira and Brazilian real (-40 per cent). Over a three-year period many of the same names crop up, in pole position the Russian rouble which halved in value, the real and rand close behind, and the Japanese yen, which may come as a surprise, losing nearly two-thirds of its value against the US dollar. Remember, all currencies are relative. Let's look at the charts to see if an end to the carnage is in sight.

The Japanese are long time experts in keeping interest rates low and trying to weaken the yen, a process that started in earnest after their stock market crashed in 1990. It has stalled at the psychological 125.00 this year, also very long-term trend line resistance. Maybe we are at the end of this particular road.

 

Japanese yen

 

The Turkish lira is a tricky one, but keen prices have tempted holidaymakers who subsequently bought residential property. Lira weakness has accelerated considerably over the past three years, appreciation this month a mere blip in a big trend. Currently the man on the street does not consider currency weakness an issue; realistically we could see a lot more of the same next year, possibly even accelerating, as its implications hit home.

 

Turkish lira

 

The South African rand doesn't have a level playing field - and therefore does not chart well - with locals struggling to send money abroad. We present the chart merely for historical reference rather than suggesting it has any predictive value.

 

South African rand

 

Finally the Brazilian real, which for most of its existence was subject to currency controls coupled with a thriving black market. Floated freely 15 years ago, it weakened dramatically ahead of the PT workers' party election victory in 2003; this was reversed in full as benign policies and the commodities boom helped swell coffers. Recession and corruption on an epic scale took their toll this year and, much to the chagrin of the shopaholic Brazilian, it is now weaker than it has ever been. Currently taking a breather that might last for a good six months.

 

Brazilian real