South Africa counts among the emerging markets most at risk going forward, Moody’s said on Thursday.
The ratings agency made it clear that its statement was not a credit rating action, was commenting on the possible impacts on global markets should the US Federal Reserve hike interest rates on Friday.
“The most affected large emerging market have tended to be those such as Brazil, Russia, Turkey and to some extent South Africa, in which severe domestic challenges have contributed to exchange rate and financial market instability, and where policy room to buffer external shocks and protect growth is less robust,” said Moody’s.
“The big drops in emerging market exchange rates already seen this year were partly in anticipation of a Fed action. Other factors behind these moves included slowing Chinese growth and the related fall in export revenues for commodity exporters.”
The biggest downward currency moves among the largest emerging markets during the course of 2015 occurred in Brazil, Turkey, Russia, South Africa, Mexico, and Indonesia, with an average depreciation against the dollar of about 17% since the beginning of the year.
“Although currency depreciations can augur well for exports, they tend to be accompanied by turbulence in domestic financial markets, which can affect overall growth,” said Moody’s.
“Also, sluggish demand in trading partners has limited improvements in export performance in most emerging market exporters, despite the depreciation of their currencies.”
That is why Moody’s expects that the combination of these factors will lead to slow or negative economic growth in many emerging markets.