Emerging markets’ currencies have staged a comeback
AFTER DUSK men from Lea Lea, a village in Papua New Guinea, wade into the Coral Sea to spear fish sleeping near the seabed. Their torches twinkle in the darkness. But they are easy to miss against the riot of illumination from a $19bn liquefied natural gas plant. Built by ExxonMobil, it stores natural gas from the country’s highlands, which is piped to tankers at the end of a jetty over a kilometre in length.
When the plant was opened in April 2014, the oil price was well over $100 and gas was similarly valuable. Energy prices have since plummeted, but Papua New Guinea’s currency, the kina, has been allowed to fall only gradually. Its strength has hurt the country’s other exports, including coffee, tourism and fish. And because foreign exchange is underpriced, the central bank has been forced to limit its availability. A decline in Papua New Guinea’s currency would, then, be a relief for many.
That sets the country apart from many developing countries, including several represented at the Asia-Pacific Economic Co-operation (apec) summit in Port Moresby, the country’s capital, last week. Their currencies have already fallen quite enough this year, thank you. Russia’s rouble has declined by over 20% from its highest point of the year to its lowest. Other apeccurrencies have also suffered, including Chile’s (which declined by over 15% from its peak to its trough), Mexico’s (over 13%), and Indonesia’s (over 12%).
At the gathering Malaysia’s prime minister, Mahathir Mohamad, recalled the speech he gave at the same summit 20 years ago. Back then, amid Asia’s financial crisis and Russia’s default, emerging markets were “thrown into utter disarray by currency speculators [who] were laughing all the way to the bank”, he said. But this year speculators have not had things all their own way.
Few of the big emerging markets still offer foreign-exchange traders anything resembling a one-way bet. The “extreme currency misalignments” that prevailed at the start of the year have now been largely corrected, according to the Institute of International Finance (iif), a think-tank. Better-aligned currencies have also begun to work their magic on trade imbalances. Turkey’s exports were 22% higher this September than last. Its current-account balance could turn to surplus by the end of 2018, according to the iif. In Argentina, meanwhile, falling imports helped the country post a trade surplus in September.
Indeed, many of the emerging-market currencies that suffered most in the summer have staged partial rebounds—enjoying a snigger, if not quite a laugh, at speculators’ expense. Turkey’s lira bottomed out in August and has since gained over 25%. The currencies of Argentina, Brazil, Russia and South Africa hit bottom the following month and have climbed substantially since. Those of India and Indonesia fell less sharply and bottomed out less quickly. But even they have eked out gains against the dollar in recent weeks