International | Sep 22 2006
By Chris Shaw
The fact there was anther coup this week in Thailand is not surprising given in the past 60 years there have been 18 such events, but the sight of tanks rolling down the streets is never something that gives investors, particularly foreign investors much confidence. Combined with some violent uprisings in Hungary in recent days the environment in emerging markets, at least according to Danske Bank, is now far less positive than had been the case a week ago.
The bank suggests such events are likely to add to the current preference for risk aversion among international investors, with such an approach having the greatest impact on emerging markets.
In its view the flow through impact is unlikely to be as severe as was the case in May and June as then bond yields were rising and so the attractiveness of the investment case in emerging markets was falling. Bond yields are moving lower now though, leading the bank to suggest any sell off in coming sessions is likely to be limited.
The bank does point out some regions and markets are currently looking more at risk than others. Among those looking likely to move lower is Latin American, where it suggests stocks appear priced for a fall, which would also most likely drag down currencies in the region as well. Similarly, Central and Eastern Europe doesn’t look particularly attractive, the bank pointing out from a technical viewpoint currencies in the region appear poised for a fall, most likely in the next week or two.
In contrast the bank’s technical analysis points to reasonably bullish indicators for Asian currencies, particularly those offering a high yield such as the Philippines peso, the Indonesian rupiah and (surprisingly given the coup) the Thai baht.
With such an outlook the bank remains cautious on the Central and Eastern European markets, but while technically the Asian markets look better it seems the potential for uncertainty to continue at least a while longer will limit performance in the short-term.
