The largest emerging markets, whose economies grew more than four-fold in the past decade, are making losers out of everyone from central bankers to Procter & Gamble Co. as their currencies post the biggest declines since at least 1998.
For the first time in 13 years, the real, ruble and rupee are weakening the most among developing-nation currencies, while the yuan has depreciated more than in any other period since its 1994 devaluation. P&G, the world’s largest consumer-goods maker, cut its profit forecast for the second time in two months last week in part because of currency losses. Brazil’s Fibria Celulose SA, the biggest pulp producer, asked banks to loosen restrictions on dollar loans as the real hit a three-year low.
India’s currency rebounded 0.4 percent at 11:06 a.m. in London as the government said it increased the amount of rupee-denominated debt overseas investors can own, one of several measures unveiled to support the currency. The yuan fell as much as 0.3 percent to 6.3827 per dollar, the weakest level since Nov. 29, before closing little changed. The ruble strengthened 0.1 percent.
P&G, led by Chief Executive Officer Bob McDonald, said in a June 20 presentation at the Deutsche Bank Global Consumer Conference in Paris that foreign-currency fluctuations will cut 2013 earnings growth for the maker of Tide washing detergent and Bounty paper towels by about 4 percentage points. China is the Cincinnati-based company’s second-largest market and some of the firm’s biggest businesses are in Russia and Brazil, P&G said.
Citigroup Inc., which has been expanding in Latin America and Asia under Chief Executive Officer Vikram Pandit, may take a $3 billion to $5 billion “hit” this quarter related to foreign exchange losses, Charles Peabody, a New York-based analyst at Portales Partners LLC, said in an interview with Bloomberg Television on June 20. The losses may reduce Citigroup’s book value, or assets minus liabilities, he said.
“All the BRIC looked ugly,” John Taylor, who oversees $3.5 billion as founder of currency hedge fund FX Concepts LLC in New York, said in an phone interview on June 19. The real and ruble will suffer “fairly decent” declines later this year as a global recession spurs investors to buy dollars as a haven, Taylor said.
“What we’ll see now is basically a full-blown credit problem,” said Rajpal, who predicts rising defaults in Brazil will resemble the collapse of the U.S. subprime mortgage market five years ago.