The Omni Intelligencer

Sell your house faster for more. auction-style-property-sale
  Tuesday, September 01, 2015  Home > Money > Finance > Investment > An Easy Way to Buy Emerging Market Currencies
Follow us on Twitter
Every Dollar Helps
Donate using PayPal

An Easy Way to Buy Emerging Market Currencies

| More

I am often asked: What do you think of emerging market (EM) currencies? My usual answer is that many, especially those among the Asian currency block, are fundamentally undervalued against the U.S. dollar and represent an excellent long-term investment.

Many people however find it difficult to buy these EM or exotic market currencies. But there is an easy way for you to do it. And as you view the following charts, I think you'll quickly see what I mean.

Below are charts of five countries' stock markets (black line on the chart) compared with the value of their currencies (orange line on the chart) valued relative to the U.S. dollar. The correlation is very tight i.e. higher stocks and higher currency values, vice versa.





South Africa

So, I think it can be said that if you are bullish on emerging market stocks, you must also be bullish on their currencies. And if you're bearish on the stocks, you're bearish on their currencies relative to the U.S. dollar.

Why is this correlation between EM stocks and their currencies so tight, when we don't see the same degree of correlation among the currencies of the industrialized world currencies relative to their stock markets?

It Is All About Liquidity!

The amount of currency issued and outstanding in emerging markets is relatively small compared to industrialized countries — makes sense. Plus, the demand for EM stocks results in a direct and corresponding relative demand for the currencies. That's because to buy those stocks in local markets you first have to convert whatever currency you are using to the local currencies in order to make that purchase.

Therefore, a stock decision becomes a currency decision. And the relatively small amount of currency outstanding relative to equity markets in EM countries, directly impacts the value of the currency.

Now as you look again at these charts above, consider this:

By investing in EM stock indices, which can easily be done with the whole host of ETFs, you are effectively making a currency decision.

Thus if you get excited about an EM currency story and don't want to go into the spot Forex market or the corresponding currency ETF isn't available, you can play your new favorite EM currency by owning the local stock index.

And for the average investor, it is much easier to find an appropriate EM or exotic market ETF than it is to find an equivalent direct currency play.

As EM liquidity increases in the years to come, this extremely tight correlation between local stocks and the local currency will begin to breakdown. But for now, EM stock index investing is a simple and powerful way to invest in an EM currency of your choice.


Sell your house faster for more. auction-style-property-sale
| More

Current Headlines - Finance

  • Kentucky clerk, citing God, defies courts on gay marriage 1 Sep 2015 | 4:52 pm

    Rowan County, Ky. Clerk Kim Davis shows emotion as she is cheered by a gathering of supporters during a rally on the steps of the Kentucky State Capitol in Frankfort Ky. The U.S. Supreme Court on Monday, Aug. 31, 2015, ruled against Davis, who has refused to issue same-sex marriage licenses. (AP Photo/Timothy D. Easley, File)Kim Davis invokes her religious beliefs and "God's authority" — this time in defiance of a U.S. Supreme Court ruling against her.

  • Uber drivers granted class action status in lawsuit over employment 1 Sep 2015 | 4:46 pm

    Uber logo is seen on a vehicle near Union Square in San Francisco, CaliforniaBy Dan Levine SAN FRANCISCO (Reuters) - Uber drivers are entitled to class action status in litigation over whether they are independent contractors or employees, a U.S. judge ruled on Tuesday, in a case that could have wide implications for the sharing economy. Three drivers sued Uber in a federal court in San Francisco, contending they are employees and entitled to reimbursement for expenses, including gas and vehicle maintenance. In the ruling, U.S. District Judge Edward Chen in San Francisco said drivers could sue as a group on the question of whether they are employees or contractors, and over their demand for payment of tips that were not passed on to them.

  • Wall Street turbulence returns as weak China data magnifies fear 1 Sep 2015 | 3:52 pm

    A trader works on the floor of the New York Stock Exchange as the market closes for the day in New YorkTurmoil returned to Wall Street on Tuesday after a brief rest, with renewed concerns about China's economy pushing major indexes down almost 3 percent and intensifying fears of a long-term selloff. The S&P 500 is now 10 percent lower than its May record high, with the prospect of slowing global growth and an impending U.S. interest rate hike curtailing a robust bull run that saw the index gain over 200 percent from the depths of the financial crisis in 2009. Tuesday's was the S&P's worst drop since Aug. 24, when it slumped 3.94 percent after three days of increasingly volatile losses.

  • Billions Wiped Off Value Of Shares In UK And US 1 Sep 2015 | 3:42 pm

    Billions Wiped Off Value Of Shares In UK And USIt was another volatile day on global stock markets with the FTSE 100 index of leading UK shares closing down 3%. The London stock market was shut on Monday due to a bank holiday but it closed down 189 points to 6059 on Tuesday. Monday's nose-dive followed comments by a senior US central banker that were seen as a sign that borrowing costs may be raised from historic lows as early as this month despite the recent market turmoil over China.

  • US stocks fall sharply on bleak Chinese manufacturing report 1 Sep 2015 | 2:03 pm

    Specialist Thomas Facchine, left, works on the floor of the New York Stock Exchange, Tuesday, Sept. 1, 2015. More signs of weakness in China's economy are sending global stock markets sharply lower. (AP Photo/Richard Drew)NEW YORK (AP) — Stocks plunged again Tuesday, continuing a rocky ride for Wall Street, after gloomy economic data out of China rekindled fears that the world's second-largest economy is slowing more than previously anticipated.

  • Ian King Live: The Big Business & Economic Stories 1 Sep 2015 | 12:54 pm

    Ian King Live: The Big Business & Economic StoriesFollowing the rallies everywhere at the end of last week, there had been some hopes among stock market investors that, after an abysmal August – during which both the FTSE-100 and S&P 500 indices suffered their worst falls in a single month since May 2012 – September might have begun slightly better.

  • Stocks Are Sending a Recession Warning 1 Sep 2015 | 12:00 pm

    The bad omens are building in the stock market. Forget for a moment about the Federal Reserve, which seems committed to raising interest rates this month for the first time since 2006. The stock market itself is warning of big trouble.

  • That time Hillary Clinton emailed about Gefilte fish 1 Sep 2015 | 11:04 am

    File photo of Democratic presidential candidate Hillary Clinton during a press conference at the Des Moines Area Community College in Ankeny IowaThe latest batch of Clinton’s emails includes high-level diplomatic discussions — and a few surprises.

  • What Joe Biden’s previous presidential campaigns can tell us about how he’ll make his big decision this year 31 Dec 1969 | 6:00 pm

  • This senator is the GOP's anti-Trump 31 Dec 1969 | 6:00 pm

    Jeff Flake still believes politics is "a noble profession" — a view that makes him an anomaly in 2015

The fastest and best way to sell real estate.