Tim Seymour: Turkey, Brazil, Russia: after months of protesting that their money bought too much, country after country is now moving aggressively into the foreign exchange markets to support their currencies.
Turkey has bought a record $4 billion in lira over the last two months and Russia has tapped its foreign currency reserves for at least $20 billion since Sept. 1 to protect the ruble.
The goal in both cases is to artificially create a base for currencies that would otherwise be plunging as global capital flees risk markets for the dollar.
Poland, Malaysia, the Philippines, South Korea and Brazil are also either officially involved in the currency markets or rumored to be preparing to defend their money.
While intervention like this did contribute to yesterday’s 0.8% decline in the DXY or “dollar index,” the DXY is rebounding 0.56% this morning.
The move we saw yesterday in the emerging currency markets was exciting, but not organic.
We want to see these currencies move up on their own before we know that the institutional funds are gearing up for a return to these markets.
Until that happens, there is not much chance that capital flows out of the emerging world will reverse — or that a flood of new money will lift stock prices in Brazil, Russia or any of these countries.
Currency funds like the broad emerging markets fund WisdomTree Dreyfus Emerging Currency (NYSE:CEW) have started moving in synch with equity funds like iShares MSCI Emerging Markets Index (NYSE:EEM):
The threat — and reality — of new currency intervention will help support CEW and its more specialized peers like ruble-linked (NYSE:XRU) and Brazil fund (NYSE:BZF).
But when we see these exchange rates edge up independently, we will know that the tone has changed.
Meanwhile, the natural flows here still favor a long dollar position like the PowerShares DB US Dollar Index Bullish ETF (NYSE:UUP) over a short like PowerShares DB US Dollar Index Bearish (NYSE:UDN).
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.