Wednesday, May 16, 2012

BRICs hit by capital outflows

Capital outflows from emerging markets, in particular the BRIC nations, are picking up steam. BRIC currencies, except for the Renminbi (which is tightly controlled by China) have corrected sharply. (The charts below show how much of each currency can be bought with one dollar - the larger the number the weaker the currency).

1. Brazil
WSJ: - ...investors made net withdrawals of $2.4 billion dollars from Brazilian investments during the period May 1 through May 11, according to Brazilian Central Bank figures released Wednesday. The figures represented a significant speed up in withdrawal of capital from Brazil. During the entire calendar month of April, net withdrawals totaled only $939 million.

Brazil's foreign trade accounts, on the other hand, brought in a significant net volume of dollars. Net trade inflows for the period May 1 through May 11 were $1.8 billion--but there was still a shortfall of $639 million.

USD-BRL (Brazil)

2. Russia
WSJ: - Russia's top central banker warned on Wednesday that capital flight is a "serious problem," as newly released figures showed $42 billion has left the country in the first four months of the year. "Capital outflow continues to be a serious problem for the Russian economy," the central bank's chairman, Sergei Ignatyev, told Russia's lower house of Parliament.
USD-RUB (Russia)

3. India (discussed earlier)
The Economic Times: - The rupee today fell to a five-month low by losing 47 paise to 54.26 against the US dollar on the Interbank Foreign Exchange market in early trade on increased capital outflows amid strong demand for the greenback.
USD-INR (India)

4. China
Bloomberg/BW: - China’s central bank and commercial lenders sold more foreign currency than they bought for the first month this year in April, indicating capital may have flowed out of the world’s second-biggest economy.
“Definitely, it’s a capital outflow,” said Cliff Tan, East Asian head of global currency research at Bank of Tokyo- Mitsubishi UFJ Ltd. in Hong Kong. The government may “work on some structural policy changes that would encourage capital inflows, like allowing foreign pension funds to invest in China and more central banks to buy Chinese debt,” he said, calling the April flows “capital seepage.”
You will hear each country and the media provide various excuses for the outflows and the corrections in the FX levels. Local banks need dollars, importers need dollars, etc. Also the official net flow numbers will not always reflect the "effective" outflows, particularly when FX forwards are used. But the reality is that global investors are once again aggressively cutting back their BRIC exposures.
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