Emerging-market currencies may extend drop: Morgan

Emerging-market currencies are poised for further losses as recessions force wealthier nations to rein in overseas investment, Morgan Stanley says.

One-third of the world’s wealth has been wiped out by the financial crisis and this will have a lasting effect on global consumption, wrote London-based Stephen Jen, chief strategist for emerging markets in the bank’s sales and trading arm. Foreign direct investment in the developing nations of Asia, Europe and Latin America is already starting to cool, he said.

“Capital surplus nations are no more immune to the global slowdown than capital deficit countries and the rise in Anglo-Saxon countries’ savings rates will be a powerful trend in coming years,” the note read. “The cyclical shock is just beginning and some of the slower-moving capital will start to pressure emerging currencies in all three time zones.”

Twenty-two of the 26 emerging-market currencies tracked by Bloomberg tumbled versus the dollar in 2008 as $1 trillion of credit-market losses, the bankruptcy of Lehman Brothers Holdings and recessions in the US, Europe and Japan curbed investors’ risk appetite. Weaker demand for developing nations’ exports also hurt their currencies, Jen said.

China, India and Brazil have all reported slides in overseas sales in the past month. Russia, the fourth of the so-called BRIC nations that comprise the world’s largest developing economies, announced the slowest growth in a year.

Jen, who until yesterday was the bank’s global head of currency research, stressed that his research may no longer be considered as ‘independent or objective” following his move to Morgan Stanley’s trading team. He didn’t provide forecasts for any of the currencies he tracks.