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Central bank reserve policies with holes like Swiss cheese

Weekly investor research

19 January 2015

In the global section we highlight Switzerland’s decision to abandon its FX intervention ahead of QE from the ECB which is an important warning for Emerging Markets (EM) central banks not to invest so much in developed market currencies, just because they happen to be big and liquid. What may be big and liquid may also be volatile and unstable. Ultimately, a volatile, unstable currency does not protect the purchasing power of the assets denominated in that currency – just ask the Swiss. Elsewhere, the World Bank’s Global Economic Prospects report predicts that EM real GDP growth will accelerate to 4.8% in 2015, which is almost back to 2013 levels after a dip in 2014 following the 200bps re-pricing of EM yield curves during the Taper Tantrum.

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