Currency wars highlight risk and opportunity

After a positive first half risk assets are now on the back foot. Heightened volatility in currency markets has been particularly unsettling for emerging markets. Whether investors view currencies as a risk to be managed or an opportunity to be exploited the message is clear: doing nothing is not an option, writes Insight Investment’s head of currency Paul Lambert

Year-to-date the MSCI World equity market index has fallen 6% in US dollar terms. Strategists are now predicting the worst year for equity and bond returns since the current bull market began in March 2009. But these moves seem modest when compared to what has been happening in currency markets. Emerging market FX is now at the lowest level since September 2009. The Brazilian real and Turkish lira have hit all-time lows versus the US dollar. Currencies from the South African rand to the Indonesian rupiah and Australian dollar have recorded double digit percentage declines.

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