“One key challenge for Beijing is to properly sequence the interest rate and exchange rate reforms,” says Stephen Jen, head of the currency hedge fund SLJ Macro Partners.
Archive for March, 2014
Not everyone is convinced these sorts of defensive measures will be effective. “For much of this year we’ll see meaningfully weaker EM currencies – 10%, maybe 20% lower than they generally are now,” says Stephen Jen, co-founder of SLJ Macro Partners, a hedge fund based in London. “The real story here, and the real driver behind this weakening, isn’t US tapering, but US growth. People are talking about this as an EM mini-crisis started by tapering, but that is inconsistent with the price action. The EM currency peak occurred in May 2011, so this sell-off has been going on for two and a half years – all because of US economic growth. Tapering just made the weakness very obvious. In the past, when the US economy grew, EM countries grew with it. This time around we’re seeing the exact opposite.”
“New Zealand has severe structural weaknesses that are very similar to those of crisis-hit southern European and southern emerging market economies,” says Stephen Jen, a partner at hedge fund SLJ Macro Partners.
In a recent note he compared New Zealand with Ireland in 2007 before its financial crash with an economy based on debt and credit, low savings rates and current account deficits. The Kiwi dollar may be 20 per cent overvalued, he said.