From Brazil to Thailand, emerging currencies to endure

A currency trader covers his face with his hands at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea on Friday. (AP photo)

MUMBAI — As global bonds reel under hawkish rhetoric by major central bankers, AllianceBernstein and Amundi Asset Management say emerging-market currencies will weather the storm better than 2013.

Improvements in external balances, higher reserves and subdued inflation are among factors making developing-nation economies from India to Mexico appear less vulnerable to the risk of outflows when their advanced peers begin to taper, they say. Recent stability in exchange rates and a gauge of price swings near a three-year low are signs of their resilience.

“This episode of rising developed-market yields is unlikely to be as negative as it was in the 2013 taper tantrum selloff,” said Abbas Ameli-Renani, a London-based portfolio manager for EM bonds and currencies at Amundi, which oversees $1.2 trillion. “We continue to be comfortable with currency exposure on higher yielding EM currencies with ongoing external rebalancing, such as the Mexican peso and Brazilian real.”

Central banks led by the US Federal Reserve are preparing to roll back easy credit policies as their economies recover and borrowing costs rise. Canada raised rates last week for the first time since 2010, becoming the first Group of Seven country to join the US in doing so, while the European Central Bank and the Bank of England have hinted at the need to tighten.

The phasing out of stimulus is an unprecedented challenge that may be more disruptive than people think, JPMorgan Chase & Co. Chairman Jamie Dimon said Tuesday. The ECB’s Governing Council is scheduled to meet in Frankfurt July 19-20, with respondents in a Bloomberg survey split on whether officials might set the tone by dropping a pledge to boost quantitative easing if needed.

Even so, the MSCI Emerging Markets Currency Index is up in July, and higher from a month earlier, when the Bank of Canada surprised investors…