Did the move sneak below your radar?
It’s the sort of thing that woud have US pro-business politicians screaming “tariffs!” at you in a second! South Korea and Indonesia went into the currency markets this week to adjust prices. The reason you haven’t heard anything? (Besides being deafened by all the euro/IMF/Fed worries.) The central banks bought their own currency in an effort to shore them up! Thus, U-turn from this spring’s policies.
The link above explains the why, but not the effects and analysis we can draw from this.
Essentially, it’s a strong indication that inflation is still the clear worry, and that these economies are intent on strengthening internally. The price of domestically consumed imports tends not to be the major economic worry in Korea most times, and although it is not possible to say this is it at the moment, raising prices to their overseas customers is a pretty bold move ahead of a possible western-world slowdown. Given that they are willing to trade a price advantage to contain inflation, I suppose a slowdown worries in these two economies seem overblown. Comments from Thailand’s Finance Minister also echo the same sentiments of growth being possible there and inflation being a key worry, although his suggested action lies closer to the other end of the scale. Of course, China is in on the game as well, allowing the yuan to stay at around 6.38 to the US$ even though the euro looks like it’s practising swim diving. Praise from Geithner over allowing the currency to rise against a basket of other currencies? He’s too busy sticking it to the Europeans, sorry.
Cliff notes: We are unlikely to see another truly global recession, and there will still be pockets of strong actual growth if you trust these three countries’ officials and the newsflow they put out. In case something really does go wrong in the west (say, breakup of the eurozone) these economies and others like them in their region will have the latitude of policy options so sorely missed by their developed world counterparts. I would be highly bulllish on these markets, but avoid recommending buying anything. You’ll make money most likely, but there are further falls to be had, which in these markets eliminate the riskiest assets and thus why not wait for things to calm down to get low risk, high potential and a low price?