Foreign Exchange (A Special Report) --- Emerging Risks: Currencies of developing countries have been strong; Here's what may come next
Emerging-market currencies have paid off for many investors lately. But analysts warn that investors shouldn't be lulled into thinking the good times will necessarily last.</br></br>On the upside, rapid economic expansion in developing countries should continue to bolster their currencies -- good news for investors in stocks and bonds from those countries.</br></br>Many countries, though, are fighting the appreciation of their currencies, mainly because it makes their exports less competitive and encourages imports that compete with domestic products. Some have imposed restrictions on capital flows, and others have sold their own currencies in the foreign-exchange markets.</br></br>How serious developing countries are in those efforts will go a long way toward determining how their currencies fare over the long run.</br></br>"Even with the capital controls, I don't think you are going to be able to stem the overall appreciation trend," says New York-based Joyce Chang, J.P. Morgan & Co.'s global head of credit and emerging-markets research. "But we're not expecting the same kinds of returns that were achieved in 2010," she says.