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— This is the script of CNBC's news report for China's CCTV on August 14, 2018, Tuesday.
In the trade on Monday and in overnight, we can see that Turkish currency crisis is still warming up in global market, and Turkish Lira plummeted, down weighting EURO to hit a record low in 13 months on Monday, and also pressuring other emerging market currencies. Investors bought safe heaven asset, such as JPY and Swiss Franc, because of the concern of crisis. In this kind of conduction effect, some emerging market countries with high deficit in current account, their currencies are usually vulnerable to the turbulent in Turkey, for example, Brazilian Real fell 1.6% against the US dollar on Monday, approaching this year low, the Indian rupee hit a record low against the US dollar on the 13th. Among them, Argentina is more noteworthy.
The turbulent in emerging market recently and an increasing worry about anti-corruption in Argentina resulting in Argentine peso against the US dollar slide again on Monday, with 2.4% drop, hitting new low record. We have known that because the great financial deficit, high debt and high inflation, Argentina is considered as one of the most sensitive emerging markets. While yesterday, Argentina central bank increased the base interest rate from 40% to 45% unexpectedly, and that was the 4th time this year it raised interest rate without omen.
In addition, Philippine peso and Indonesian rupiah lost; Indonesian rupiah against US dollars slide to the lowest level since Oct 2015. For the country with surplus in current account, its fundamentals are a little bit strong, but in currency market, such as Malaysian ringgit and Thai baht also show a drop trend.
[Tai Hui, JP Morgan Asset Management] "It's very similar to what we discussed a few years back when Greece was under a huge pressue, capturing the headlines, but the direct economic link are just manageable. So I think while there are still a lot of pressure points at this point of time, the fundamentals of Asia, especially for current account surplus markets, I think its doing reasonably good shape."
Let's review the currency crisis in turkey again. The last news also pointed out that Turkey central bank is taking a series of rescue measures, some analysis, however, warning that Turkey just uses some peripheral approaches, and that doesn't work to the fundamentals of Lira. But there are some analysts came up with some other ways Turkey can adopt when they discussed this problem with CNBC.
Those ways including soften political position, like releasing US Priest, increasing interest rate and emphasizing the independence of central bank, clawing back the trust from international investors. On the other hand, Turkey could apply loan from IMF, but they may have to accept the requirements to make economy reforms. It is considered as a soft way, but if Turkey shows such a soft position, that will comfort the sentiment in emerging market. But Turkey is also possible to take an aggressive approach to defense Lira, those extreme measures including regulating capital and confiscating gold and US dollars.
And obviously, if Turkey adopt the later one, we can see the crisis continue warming up, in addition, from the view of stock market, some funds investors had to sell the assets of other emerging market countries to reduce holds in order to stop loss, causing the capital in emerging market countries flow in a fast speed, we will keep an eye on this issue.