Threat of Contagion in Emerging Markets Deepens Commodity Risk – by Javier Blas (Bloomberg News – August 14, 2018)

When Thailand devalued its currency two decades ago, few in global commodity markets took note. Within a year, the crisis morphed into an emerging-market rout that eviscerated the price of everything from crude oil to copper.

Fast forward to today and Turkey is presenting a similar challenge. The lira plunged to a record low against the dollar this month, taking local stocks and bonds with it.

Commodity markets have failed to react, with even gold unmoved by the chaos. Traders are focused more on Iranian sanctions, South American mine strikes and drought damage to crops, all of which point to higher, not lower, raw-material prices.

Now, the lira’s plunge is spreading to other developing economies, with broad currency and equity weakness in markets such as South Africa, India and Indonesia. That pain is coming at a time when those nations were already adjusting to higher borrowing costs after the U.S. Federal Reserve raised interest rates in June, for the seventh time since 2015.

“The problem is that the world is addicted to a super-low interest rate environment,” said Richard Fullarton, the London-based founder of Matilda Capital Management Ltd., a commodity focused hedge fund.

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