The stomach-churning drop in China’s markets and devaluation of the yuan triggered market volatility that went far beyond China’s borders. Investors watched in horror as equities and currencies alike went on a roller-coaster ride that has continued past the end of August and into September.
While China is still trying to control volatility in its markets and all eyes are on the Fed to see whether it will raise interest rates, other countries’ currencies have been riding a swinging pendulum for weeks, and trying to avoid falling off a cliff.
Emerging markets have been hit particularly hard, though they are by no means alone. However, many EM countries are overly dependent on doing business with China, and the devaluation of the yuan has threatened their economies. As a result, the move by China has set off falls in currencies elsewhere, as some countries seek to offset the damage the yuan devaluation has done by devaluing their own currencies, and others simply fall under traders’ bets.
While many deny that they’re engaging in a “currency war,” the G20 group of nations formally acknowledged the possibility by agreeing “to refrain from competitive devaluations” at a meeting over the Labor Day weekend in Ankara, Turkey. The G20 hasn’t used such specific terms about currency woes since 2013.
Here’s a look at 6 currencies that are experiencing the most volatility or getting the most attention for investors to consider in days to come.
1. Turkish lira:
The Turkish lira has performed worse this year than any currency outside South America. Since the beginning of the year it’s lost 22%; just since the devaluation of the yuan, it’s lost 7.5%. It’s been 11 years since the currency has seen so many consecutive weeks of descent.
Beset by inflation and political woes, the Turkish economy is probably headed for more trouble. The government faces snap elections in November, which Moody’s says is “credit negative” for the country and will likely keep the existing government from taking any action to resolve the problems it already faces on the home front.
2. Vietnamese dong:
Vietnam has devalued its own currency, the dong, for the third time this year. The country posted a trade deficit of $300 million in July amid slowing export growth, and other countries in the region have seen their currencies fall by greater proportions than the 4.4% it’s already down.
Earlier devaluations of 1% each in January and May—the same amount as this latest move—brought increased economic growth; the State Bank of Vietnam has said it might take additional steps, particularly if the yuan falls again. The bank is also concerned about the possibility of an increase in interest rates from the Fed.
3. Malaysian ringgit: