Risky times for fragile five currencies
Rising oil prices have raised concern over the currencies of Indonesia, South Africa, India, Turkey and Brazil
After months spent working to erase their image as emerging markets to avoid, the Iraqi crisis and its influence on oil prices are putting the fragile five currencies back on investors' sell lists.
The Indonesian rupiah, South African rand, Indian rupee and Turkish lira are the four worst performers of 31 major currencies tracked over the past month, while the Brazilian real is little changed after three months of gains.
Societe Generale and BNP Paribas recommend selling the lira, while Citigroup identifies the rupee and rupiah as the riskiest Asian currencies.
"We're growing concerned about the situation in Iraq, which has the potential of undermining the performance of [emerging market] assets," said Benoit Anne, the head of emerging market strategy at SocGen in London. "[Oil] has become the main risk indicator for emerging markets."
Morgan Stanley coined the term "fragile five" in August last year to describe currencies that are particularly vulnerable because of their dependence on foreign investment to fund current account deficits. With most of their trade shortfalls made up of oil imports, the rise in Brent crude to a nine-month high would tend to affect these nations more than others and is causing the value of their exchange rates to tumble.
A Morgan Stanley analyst could not be reached for comment on those currencies.