LONDON, March 11 (Reuters) - South Africa’s rand, Turkey’s lira and Brazil’s real suffered some of the steepest losses in the recent emerging-market rout. Their peers in the so-called fragile five, India and Indonesia, escaped with less damage.
The five countries got their name in 2013, as hints emerged that the U.S. Federal Reserve would end its easy-money policy. Bound together by sizeable current account deficits and reliance on foreign capital, they looked vulnerable to shocks such as a strong dollar and rising U.S. interest rates.
In the latest emerging-market sell-off, Brazil has lost as much as 15 percent and Turkey 11.5 percent since the start of the year, as this graphic shows:
“The poor performance of the Brazilian real, Turkish lira and South African rand reflect continued strains in each country’s balance of payments,” Capital Economics said in a recent note.
As this graphic shows, India has improved its current account deficits, becoming less reliant on foreign funds to prop up its economy. Indonesia also looks in better shape than Brazil, Turkey and South Africa:
India and Indonesia had elections last year that led to reforms which investors hope will invigorate growth. But in Brazil incumbent Dilma Rousseff was re-elected, and with the government engulfed in a corruption probe, doubt remains whether she can push through fiscal consolidation.
“Brazil has a kind of accumulation of everything that’s bad for investment - an ugly growth forecast, large twin deficits and high inflation,” said Patrick Mange, head of global emerging markets strategy for BNP Paribas Investment Partners.
In Turkey, pressure from President Tayyip Erdogan on the central bank to cut interest rates has weighed down the lira. South Africa has been dogged by electricity shortages, labour unrest and a gaping current account deficit.
The diverging fortunes have also hit foreign exchange reserves, as this graphic shows: link.reuters.com/vem34w
India and Indonesia have managed to beef up their reserves, but Brazil, Turkey and South Africa have all seen declines as they try to prop up their currencies and their economies. (Reporting by Sujata Rao, graphics by Vincent Flasseur, writing by Karin Strohecker; Editing by Larry King)