Are emerging forex markets worth the risk?

Looking to invest in emerging forex markets? Well you may want to hold on to your money as it’s been a pretty rocky year for most emerging currencies. But what’s been causing the unrest - and what are the risks?

Any country’s currency has three general factors to measure how risky it is:

  • Its economic stability
  • Its political stability
  • Potential impacts from global events

Rates and volatility levels are continually changing so it’s important to do your research before making an investment decision.* We’ll be looking at the currencies of seven emerging markets: India, Mexico, Brazil, South Africa, Russia, Turkey and Venezuela.

TRADE WITH SKRILL

THE INDIAN RUPEE

The Indian rupee is at an all-time low. It’s been hit with a double whammy of higher oil prices, worsening the country’s debt, and an exodus of foreign investors.

However, India’s GDP actually grew by 8.2% for the first quarter of the fiscal year, suggesting the economy is generally stable.

  • Volatility Rating: Medium

THE MEXICAN PESO

The Mexican peso recently sank to its weakest point in more than a year due to uncertainty around the future of the North American Free Trade Agreement (NAFTA).

Uncertainty grew after Donald Trump suggested America might abandon the agreement, delivering a blow to Mexico’s economy. The likely election of political radical and long-time critic of NAFTA, Andres Manuel Lopez Obrador, worsened fears for NAFTA’s future.

Yet, against all odds, a renegotiation of NAFTA - despite Obrador’s election in August - made the peso one of the biggest gainers amongst the emerging market currencies.

  • Volatility Rating: Medium

THE BRAZILIAN REAL

Leadership contests in Latin America are always a worry for market analysts. With political corruption fears commonplace and recovery from dictatorial pasts still ongoing, their results are unpredictable. With Brazil recently holding an election, the real hit its lowest level in over five years.

Despite this, Brazil is still a top pick in the emerging markets due to rhetoric from Jair Bolsonaro, the far-right, pro-business, and controversial contender for presidency. Known as the “Tropical Trump”, Bolsonaro’s comments around economic reforms are causing the real to rally.

  • Volatility Rating: Low

SOUTH AFRICAN RAND

South Africa is encountering instability in its mining industry as a result of several new government policies. These policies aim to scale back the economy’s dependence on its mining industry, but have reduced the strength of the rand as a knock-on effect.

The rand is now a vulnerable currency - according to the Nomura “Damocles” index, it’s the second most likely currency to have an exchange rate crisis. A crisis would lead to a massive devaluation of the currency and likely intervention from the South African government.

  • Volatility Rating: High

THE RUSSIAN ROUBLE

For the first time since 2016, the roublehas dropped down to 70 against the dollar. The currency has been hit by continued U.S. sanctions and - since Russia is a big oil exporter - the fall in oil prices earlier this year.

But thanks to a resurgence in oil prices, low inflation, and low amounts of hard currency debt, the rouble’s value has stabilised and is slowly growing again.

  • Volatility Rating: Medium

THE TURKISH LIRA

Turkey has had its share of domestic political woes in recent times and now has to contend with a political fight with Washington.

According to published figures, the lira lost a whopping 44 per cent of its value against the dollar this year alone. These issues make it the world’s worst performing currency so far in 2018.

With so much market volatility around the lira, it’s worth knowing that you can instantly move funds across trading platforms in 40 different currencies with a Skrill account - ideal when you need to quickly move your money from one currency to another.

  • Volatility Rating: High

THE VENEZUELAN BOLÍVAR

The bolívar is another emerging currency that’s been having it rough for the last couple of years. With the drop in oil prices and constant political turmoil, inflation has been rampant in Venezuela and demand for USD has rocketed.

The Venezuelan government made a drastic attempt to fix the issue of inflation by removing five zeros from their currency,but it was wishful thinking that this would halt the economic decline.

  • Volatility Rating: High

With many parts of the world going through turbulent political and economic change, the impact is being felt by world currency markets. Emerging markets that previously offered opportunities to forex traders are instead presenting real risk.

Of course, even in the most volatile times, there are secure opportunities for the savvy investor. If you do decide to step into the world of currency trading, you can keep track of the latest forex trends on Skrill News.

*The views expressed in this article are based on Skrill’s rating of currency volatility at the time of publication.