Bottom Line: Beware of history repeating itself
CAST your mind back to October 2008. As the financial crisis took hold, governments across the world unveiled multi-billion bank recapitalisation plans, while central banks simultaneously slashed interest rates to record lows and the FTSE plunged lower – falling a full 10 per cent in one single session.
Over in Ukraine, meanwhile, the hryvnia was pegged at just eight to the US dollar, sending shares in Ferrexpo – an iron ore miner with significant assets in the country – on a steady upward trajectory.
It was a similar story yesterday with Kazakhmys, but investors should take a deep breath before getting too excited. Though there was an initial dip in Ferrexpo’s costs, the ensuing high inflation dragged them up again. The honeymoon period is likely to be equally short-lived with Kazakhmys.
Yesterday’s news was a welcome filip for the firm, which analysts at Investec estimate pays around 50 per cent of its costs in the local currency, the tenge. However, the last time Kazakhstan devalued, back in 2009, it took just nine months for inflation to start to spike. Investors should be prepared for history to repeat itself.