Emerging markets – short-term growth, medium volatility and potential devaluation.

Shares in emerging markets countries, according to data by Reuters have risen by nearly 1.5%, driven by the decline in USD and the minutes of the Fed.

The dollar lost short-term, most likely as a result of massive profit taking. FOMK-record, on the other hand, shows too cautious approach to interest rate tightening. Fed describes future policy as very gradual and providing maximum support to emerging markets.

This growth is likely to be short-term, because it is based on rumors and expectations that may not be accurate enough and so decisive. Additional volatility can bring the ECB, after announcing the revaluation of the incentives in early December, to which expectations are too high. Calculated against the collapse in August, emerging capital markets have recovered by about 10%, for which the main driver has been a counterbalance to China. Hong Kong yesterday and today also goes up total nearly 1.4% and shows support of real estate companies, such as this year is almost absent in the sector.

Although the yuan remains far from real international recognition, IMF President Christine Lagarde concluded that it meets the criteria to be "freely usable", which has a positive effect in the Chinese economy and strengthen the financial reforms in China.

An indirect effect is seen in the mining sector where quotations of BHP Billiton rose by 2.9%. Reverse marks after oil minister for Saudi Arabia said that the capacity for production must be increased to 5 million barrels and Goldman Sachs warned strongly increased risk for price declines. At present assessment is that the global oversupply is around 3.3 million bar per day. Such development will be very negative signal for many resource-oriented economies.

The conclusions are that in emerging countries growth is short-term and it is not backed by solid economic arguments which can expect high volatility of local currencies and medium-term potential devaluation.

G.Hristov / Head of Fundamental Analyzes