BRICs under pressure

By Sober Look

As the emerging markets contagion spreads, the BRIC nations are coming under increasing pressure in the capital markets. As discussed previously Brazil and Russia are witnessing new multi-year/record lows in their currency valuations. The Indian rupee is still above the all-time low (last summer), but at 63.5 rupees to the dollar, we are not far from that record.

BRL = Brazilian real, RUB = Russia ruble, INR = Indian rupee (chart shows dollar appreciating against these currencies; source: Investing.com)

China of course has a controlled currency peg to the dollar. But participants in the nation’s interbank market remain jittery. Recently a rumor was spread that China’s banks were instructed to suspend cash transfers. Forbes ran with the story and later removed it from its website, as the rumor turned out to be false (see story). Nevertheless China’s overnight interbank rate rose again, showing just how uneasy the market participants have become.

China’s overnight interbank rate

Credit fears surrounding a close call with a wealth management trust called “Credit Equals Gold #1” – which was ultimately bailed out – and others like it have infiltrated the markets (see story). It is expected that these incidents – and the corresponding liquidity jitters – will continue, potentially becoming a major problem for China.