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More Easing to Help Emerging Market Currencies

By    |   Monday, 27 Sep 2010 08:58 AM

What is risky? Some people say that emerging markets are risky and that the U.S. dollar is safe (since it’s the world’s reserve currency).

However, much of this is how it is viewed and not how it is in reality.

Also, there are times that its risker to be in some financial instruments than in others. We’re starting to enter one of those times again where it is actually risky to be exclusively in the U.S. dollar. It’s also coming a time again when it’s not as risky to be in the emerging market currencies.

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When should you be involved with the emerging market currencies? It’s best to be involved in the emerging market currencies (like the South African rand, Turkish lira, Mexican peso, etc.) when financial markets are stable and when the U.S. government is about to stimulate the economy again.

When the U.S. government says it’s going to stimulate the economy, really what they mean is “we’re about to print more money” and pour it into the economy.

Since the Federal Reserve has tipped their hand at the latest interest rate meeting, we know that they’re going to further stimulate the economy and we know that they will keep interest rates low. Therefore we know that the dollar will continue to be the “cheap money.” Neither of these two scenarios is good for the greenback.

Also, all of this will cause more inflation to be spurred in the U.S. and around the world. As that happens, the big money has to go into higher yielding instruments to continually keep an edge over the rate of inflation.

Therefore there will be a lot of institutional money that will head off-shore and go into these emerging markets (especially since they are so much more stable than they were just years ago).

These economies still have “real growth” and they’re not stagnating like many of the more developed nations out there.

So when you combine higher growth and higher yields is it really more risky?

Not really. A lack of growth and expansion and low interest rates are more risky.

Knowing this, there will be a lot of money to be made investing in the emerging market currencies. Most all of your major forex brokers trade these exotics now too.

Don’t get me wrong … they are fast moving and very volatile. (Picture the Internet stocks and tech stocks back in the day and you’ll have the right frame of mind).

But if you can stomach the volatility, there’s true growth in these countries that will push their currencies up (especially versus the buck) over time.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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What is risky? Some people say that emerging markets are risky and that the U.S. dollar is safe (since it s the world s reserve currency). However, much of this is how it is viewed and not how it is in reality. Also, there are times that its risker to be in some...
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2010-58-27
Monday, 27 Sep 2010 08:58 AM
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