Emerging Market Currencies See Winning Streak Slow, Possibly Hitting ETFs

July 22nd at 10:00am by Tom Lydon

Currency in emerging markets have enjoyed a five-year winning streak that has benefited some exchange traded funds (ETFs). But the good times might be coming to a halt.

Inflation is what’s doing the money in, and it’s a problem everywhere from South Korea to Turkey, report Lukanyo Mnyanda and Lester Pimentel for Bloomberg. The currencies for 26 developing countries tracked by Bloomberg returned an average of 0.92% in the last three months, compared with 1.6% in the first quarter and 8.2% for 2007. They’ve been returning 30% annually since 2003.

But for the first time in seven years, investors are less bullish on the emerging markets than they are on U.S. equities, according to a recent Merrill Lynch survey. Food and energy prices have accounted for more than 40% of inflation in India, Thailand and Turkey – compared with 25% in the United States.

Among the ETFs that could be affected if this slowdown sticks include:

  • WisdomTree Dreyfus Brazilian Real (BZF)
  • Market Vectors – Indian Rupee/USD (INR)
  • iShares MSCI Brazil (EWZ)
  • PowerShares India Portfolio (PIN)
  • iShares MSCI Thailand Investable Market Index Fund (THD)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.