As you all know, this blog has always stated that the much touted “decoupling of emerging markets” story is BS, and that the BRL is still overvalued. Just two weeks ago we wrote about the four reasons why everyone should be bullish on the US dollar. Apparently, other people agree with us. The investors’ flight out of emerging currencies has officially begun and the magnitude of the devaluation of the Brazilian real and the South Korean won may surprise the market, said Stephen Jen, a partner at SLJ Macro Partners LLC. The dollar may rise to BR$2,40, up 31 percent over yesterday’s closing price, said Jen in a telephone interview with Exame magazine. Jen was chief currency strategist at Morgan Stanley.
“The market is not ready for a sell-off of emerging market assets,” said Jen. “This is just the beginning.“ The median estimate of 22 analysts surveyed by Bloomberg points to a weaker dollar to BR$1,76 at the end of the year and BR$1,68 in December 2012.
Emerging currencies, including the Mexican peso, the Indian rupee and the South African rand, are devalued by at least 10 percent this year with the European and American debt crisis, which led investors to reduce exposure to emerging market assets.
Investors can start withdrawing money from developing countries, reversing a positive flow of the last two years, while the world economy slows, according to Jen.
“Investors are extremely committed to the story that emerging markets will grow faster than developed markets,” said Jen. “I am afraid that this is not the time to invest anywhere. This is a time for fear. “