Should Investors Be Concerned About Currency Risk?

The vulnerability of emerging markets to tighter US monetary policy still concerns many investors. Has the market priced in the impact of rising US interest rates?

Hermes 23 October, 2015 | 11:00AM
Facebook Twitter LinkedIn

Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, Gary Greenberg, Head of Hermes Emerging Markets at Hermes Investment Management asks, is currency risk overdone?

Since 2011, emerging markets have been in the midst of a “great unwind” – domestic deleveraging, decelerating demand in China, and the fear of imminent monetary policy tightening by the US Federal Reserve. Add to this lower commodity prices, a strengthening US dollar and the recent renminbi scare, and it seems we have all the key ingredients for a widespread currency crisis. 

It is no surprise that we have seen emerging market currencies yield to these rising pressures. The worst performing currency, the Brazilian real, has lost half of its value during this period with the Russian rouble, South African rand and Turkish lira no better off. Deteriorating sovereign and corporate balance sheets have led to the credit ratings of Russia and, more recently, Brazil, to be downgraded to junk status.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Hermes  Hermes is a multi-asset fund manager offering global institutional and pension fund clients access to a broad range of specialist, high conviction investment teams.

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement