This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Global Macro: India Tries to Fend Off Currency Speculators

NEW YORK (TheStreet) -- Since the Federal Reserve apparently intends to rein in bond purchases, investors have pulled funds out of emerging markets due to higher U.S. interest rates and a stronger dollar.

The lack of easy credit and fewer dollars circulating through financial markets have caused investors to pull funds out of countries like India. As funds were pulled, the Indian rupee vastly depreciated against the dollar, leading to a massive current account deficit.

It's a classic balance of payments crisis, where speculators attack a weak currency and quickly devalue it.

The Reserve Bank of India has raised short-term interest rates to try to fend off short sellers. That has had negative effects, though, as struggling corporations have seen their borrowing costs increase.

The RBI's latest effort has been to call for joint action among other members of the G20. India's mere presence at the summit this week signals that it may be trying to state its case to foreign governments, coordinating with them to buy rupees and help stabilize the currency.

The first chart below is of United States Oil (USO) over WisdomTree Indian Rupee (ICN). The pair represents oil priced in rupees. As the rupee has fallen, commodities have inflated in price, weighing heavily on the Indian consumer.

With the International Monetary Fund stating that emerging markets need to produce domestic demand for growth as the global economy gradually recovers, high oil prices will continue to weigh on Indian consumers' spending.

Similarly, the violence in Syria has magnified the effects of higher oil prices. Although the price of oil appears to have reached intermediate-term overbought levels, increased tension in the North African region or further loss of confidence in the rupee could greatly affect this pair's price level.

The next chart is of PowerShares India (PIN) over Vanguard Total World Stock Index ETF (VT). Indian equities have been sold off as investor sentiment in the country has deteriorated alongside the rupee.

The pair has gained some strength recently as world leaders have rallied together in an effort to stabilize emerging-market currencies and bring strength back to those regions.

The only issue ahead lies in how investors react to emerging markets as central bank liquidity in developed countries dries up.

The mere rumors of U.S. tightening or ineffective Japanese policies have led to massive speculative selloffs in countries such as Brazil, Turkey, and India; thus far, however, coordinated policy effort -- perhaps achieved at the G20 -- could give short sellers a break for a few months. That would be bullish, or at least neutral for emerging economies that have seen weakness.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Stock quotes in this article: USO, ICN, PIN, VT 
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,441.10 +16.25 0.10%
S&P 500 1,866.78 +4.47 0.24%
NASDAQ 4,104.4310 +18.2060 0.45%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs