Meet the Fragile Five: Currency Chaos

New Emerging Nations Nickname: Fragile Five. Why? Currency Chaos.

ZeroHedge

Starting in 2001, BRIC became the identifier for Emerging Markets: Brazil, Russia, India, China due to its rapidly growing and attractive economies.

2013: Fragile Five (in my head: IBITS):

1. India (rupee)
2. Brazil (real)
3. Indonesia (rupiah)
4. Turkey (lira)
5. South Africa (rand)


Why? IBITS economies are too dependent on foreign investment. Given that, they need to keep investors from trading away their currencies. “Investors have hammered South Africa and other emerging markets with wide current-account deficits and domestic political problems.” (WSJ)

Reactions last week—to save their currency (especially against the dollar) and retain investors:

• Turkey: Dramatic Increase in Interest Rate to 4.25%. Why? So investors hold on to Lira
• South Africa: Raises key interest rate to 5.5%
• India: Raised its key rate by 0.25 percentage point to 8%
• Indonesia: Left rates unchanged (UPDATED 2/13) however was considered worst performing emerging market currency in 2013 (down 21 percent against USD past year)