As Gilead Sciences Inc. (GILD) touted its $1,000-a-pill hepatitis C cure to investors in a hotel ballroom in San Francisco, a group of about 20 protesters milled outside. “Gilead=Greed,” one sign read.
“I’m glad people have the new drugs, but I’m concerned about the prices,” said Orlando Chavez, 62, a hepatitis C and HIV counselor and one of the protesters on Jan. 13. He worries that insurers will see Gilead’s price and force patients to try a less effective, older and cheaper therapy first, he said.
Chavez has good reason to worry.
Payers face billions of dollars in new drug costs as pharmaceutical companies develop increasingly complex products in the years ahead. Express Scripts Holding Co. (ESRX), Catamaran Corp. (CCT), Aetna Inc. and CVS Caremark Corp. (CVS) among others are already pushing back against the high cost of Gilead’s drug. They’re discussing how to pit similar drugs against each other, refusing coverage for some, or subjecting treatments to more review by outside experts and refusing to pay a premium based on one drug being more convenient to take than another.
Gilead’s new drug, Sovaldi, costs $84,000 for a 12-week treatment. Such breakthrough treatments and their stratospheric price tags have “absolutely” caused insurers to reconsider covering high-priced hepatitis, diabetes and other treatments, said Sumit Dutta, chief medical officer of Catamaran, the fourth-biggest U.S. pharmacy benefit manager, or PBM.
“You can’t manage exclusively by the techniques PBMs have used in the past,” Dutta said by telephone. “We’re seeing the shift, where payers are finally going to say, ’It’s $84,000, and the other therapy is $50,000 — what am I getting?’”
Stock Valuation
For drugmakers and biotechnology companies that have zeroed in on high-priced treatments to replace blockbusters such as Lipitor, the Pfizer Inc. cholesterol drug that once drew more than $12 billion a year before losing ground to generics, the change may affect how shareholders value their stocks, according to Les Funtleyder, a health industry expert and author of the book “Health-Care Investing.”
“There’s been a feeling among investors that biotech drugs are immune from price competition,” Funtleyder said in an interview. “We’re getting to where we may have may reached a pain point.”
Increasing Costs
Prescription drugs make up an increasing share of U.S. health care spending. Spending on hepatitis C drugs alone is projected to rise seven-fold from $3 billion a year in 2011 to $21 billion in 2018, according to market research firm Decision Resources Group LLC. U.S. drug spending will grow 6.5 percent a year from 2015 to 2022, faster than overall health costs, according to the U.S. Centers for Medicare and Medicaid Services. That’s mostly driven by rising prices and a leveling off of generic drug use, according to the U.S. report.
Gilead shares fell 2.2 percent to $78.86 at 4 p.m. New York time. AbbVie Inc. (ABBV), which is also developing a treatment, declined 2 percent to $46.83.
It will take Gilead three to six months since it was approved Dec. 6 to formalize coverage with payers and PBMs, said Chief Operating Officer John Milligan in an e-mail. In the meantime, most plans are covering it, he said.
When eventually combined with a second drug Gilead is studying, the regimen’s price could rise to $100,000 or more per year, compared to what Catamaran says is about $66,000 for the current standard of care.
That’s still cheaper than treating complications of hepatitis C, which can lead to liver damage or failure and the eventual need for transplant, said Gilead’s Milligan.
“In our conversations with payers, pricing is a consideration, but efficacy, safety and treatment guidelines are equally important,” Milligan said.
Tools Available
Besides payers already have plenty of tools to push back on costs and force patients to try cheaper medicines first, and they use them, said the drug industry’s Washington trade group, Pharmaceutical Researchers and Manufacturers of America. “Typically by the time the patients get through the various steps they need to get to the product, they really do need it,” said Lori Reilly, PhRMA’s head of policy.
Even so, payers are thinking twice before opening their wallets. Jeff Park, Catamaran’s chief financial officer, said some prescription plans managed by his company are already pushing patients to try older therapies first, moving to the more expensive ones only and only if they fail.
“You can get to these more expensive treatments,” Park said in an interview in San Francisco during the JPMorgan Chase & Co. health-care conference. But to do so, “you have to outweigh the costs of the first, more cost-effective treatment.”
Side Effects
That’s a big concern for patients and advocates such as Chavez who say that strategy will force them to stick with side-effect-heavy older hepatitis C treatments that rely on difficult weekly injections, making a patient feel as if they have the flu over and over again.
Chavez contracted hepatitis C before the latest treatments were available. Now recovered, he helps others get hepatitis C as well as HIV treatment in the San Francisco Bay area. He took injections of interferon, an older drug, for almost a year to rid his body of the virus. It was a brutal regimen, he said, though it worked.
“It was terrible,” Chavez said. “I was up against it, so I had to do it, But if I had the choice today I wouldn’t.”
He and others may not have that choice.
Switch Coverage
Last year, Express Scripts stopped covering insulins and a diabetes injection made by Novo Nordisk A/S in favor of products from Eli Lilly & Co., AstraZeneca Plc and Bristol-Myers Squibb Co. (BMY) In the last four weeks, prescriptions of Lilly’s insulin Humalog are up 15 percent compared with the four weeks before Express Scripts’ change, while prescriptions of Novo’s Novolog are flat.
The same sort of competition will happen with hepatitis C, said Charles Bancroft, the chief financial officer for Bristol-Myers. The New York-based company is developing its own regimen of hepatitis C drugs that will reach the market soon after Gilead’s first-to-market treatment, and soon after AbbVie’s second-to-market multi-drug treatment.
“The Gilead product, the efficacy is at the highest level,” Bancroft said in an interview at the JPMorgan conference. “All of them are good enough, though. What will eventually happen is that pricing will become more acute. What you’ve seen in diabetes may happen more rapidly.”
Blocking Coverage
Express Scripts and other pharmacy managers have said that they’re ready to block other drugs from coverage.
“We will identify which drugs can be pitted against each other and make some really tough formulary decisions,” the company’s Chief Medical Officer Steven Miller said in a December interview.
In the U.K. and Europe, health regulators regularly weigh the benefit of drugs against their cost when deciding what the countries’ national health systems will pay for. Bristol-Myers stopped selling a diabetes drug in Germany last month after the government refused to meet its price, for example.
Obamacare could have a similar effect as individuals begin to weigh the cost of insurance products, said Jami Rubin, an analyst with Goldman Sachs Group Inc. With the Affordable Care Act’s insurance expansion, millions of new customers in the law’s health care marketplaces will be picking and choosing among drug plans based on cost and coverage, instead of having their company pick a plan for them.
“What will society pay for a cure?,” said Rubin. “Is a cure worth $1,000 a day?”

Ten years ago, Congress passed a law intended to penalize chief executive officers whose companies shift their legal addresses to tax havens.
It hasn’t worked out as planned. Companies have found ways around the law that create new rewards for executives. When Actavis Inc. (ACT) changed its incorporation to Ireland in October, the New Jersey-based drugmaker helped CEO Paul Bisaro avoid the law’s bite by handing him more than $40 million of stock as much as three years ahead of its schedule, then promising him an additional $5 million to remain with the company.
The payouts to executives highlight the ineffectiveness of the 2004 law, which contained a series of provisions aimed at reducing the tax benefits of reincorporating overseas. In the past two years, a fresh wave of companies has fled the U.S. system to avoid hundreds of millions of dollars in taxes.
The 2004 law has “clearly been a failure” in halting the tax exodus, said Edward Kleinbard, a professor at University of Southern California’s Gould School of Law. “And it now has the perverse result of putting money into executives’ pockets sooner.”
The law imposes a special tax of 15 percent on restricted stock and options held by the most senior executives when a company reincorporates outside the U.S. Since the measure took effect, at least seven large companies have disclosed in securities filings that they risked triggering the tax. All took steps to shield their executives from having to pay.
Photographer: Andrew Harrer/Bloomberg
U.S. Senator Charles Grassley, a Republican from Iowa, right, said “these expatriations… Read More
Tax Bill
Three of the companies’ boards simply picked up the tax bill for their executives, maintaining that the managers shouldn’t suffer for a decision that benefits shareholders.
At three other companies, including Actavis, the boards went a step further, helping them avoid the tax altogether by allowing restricted stock to vest early and for options to be exercised. Awarding the equity early raises the risk that the executives might quit or sell their shares, or get paid for meeting goals they never attain.
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Since 2012, at least 13 large U.S. companies have announced or completed shifts of legal address, which tax experts call “inversions,” to lower-tax nations such as Ireland and Switzerland.
Omnicom Inc. (OMC), the New York advertising firm, estimates that a planned incorporation in the Netherlands this year, as part of a merger with a French rival, will save the combined company $80 million a year. The cost to the U.S. Treasury of the recent wave of address changes may be about $500 million a year, estimates Robert Willens, a New York-based tax and accounting consultant.
Photographer: David Paul Morris/Bloomberg
Applied Materials Inc. said on Jan. 21 that it would help Chairman Michael Splinter… Read More
Tax Rate
The statutory U.S. corporate income tax rate of 35 percent is the highest among developed countries, although many companies end up paying less. Lawmakers in both parties and President Barack Obama have endorsed tax code changes that would lower the rate below 30 percent, reducing the incentive to reincorporate overseas. Those proposals have been stymied by disputes over details and what should happen to individual taxes.
Some Democratic lawmakers have introduced legislation that would treat companies managed from the U.S. as domestic even if they’re incorporated elsewhere. Carl Levin, a Michigan senator, said last year the change would raise tax revenue by $6.6 billion over 10 years. None of those bills have attracted much Republican support or emerged from committee.
Lawmakers Notice
An earlier flurry of corporate flights to tax havens triggered the 2004 law. Tyco International Ltd. of Exeter, New Hampshire; Chicago-based Fruit of the Loom Inc.; and Ingersoll-Rand Co., based in Woodcliff Lake, New Jersey, incorporated in Bermuda or the Cayman Islands in the late 1990s and early 2000s.
Photographer: Scott Eells/Bloomberg
Omnicom Inc., the New York advertising firm, estimates that a planned incorporation in… Read More
By the time Stanley Works, the 159-year-old Connecticut toolmaker, announced plans to use a Bermuda address in 2002, lawmakers took notice. They denounced the company’s CEO and proposed more than 30 different bills to curtail the practice. Connecticut’s attorney general sued, and union officials organized protests in the company’s hometown of New Britain.
“These expatriations aren’t illegal. But they’re sure immoral,” Charles Grassley of Iowa, then the top Republican on the Senate Finance Committee, said at the time. Stanley Works eventually dropped the Bermuda plan.
Grassley helped shepherd a series of anti-inversion measures into law in the American Jobs Creation Act of 2004. Some provisions made it harder for companies to get tax savings from incorporating abroad. Acquiring a mailbox in Bermuda was no longer enough.
Foreign Mergers
One route that remains available involves a foreign merger, as long as the partner is at least one-fourth the size of the U.S. firm. Most of the reincorporations since 2004 have been achieved through acquisitions abroad. They include Liberty Global Inc., the Englewood, Colorado-based cable operator, and Tower Group Inc., the New York-based insurer.
So many pharmaceutical companies are switching addresses that bankers are pitching takeovers of Irish drugmakers based on the tax benefits. Gregg Gilbert, a Bank of America Corp. drug analyst, dubbed it a “tax rate land grab.”
Another provision in the 2004 law imposed the penalty on CEOs. Since the mid-1990s, the Internal Revenue Service has required stockholders of some companies reincorporating abroad to recognize capital gains on the shares and pay income tax, even if they continue to hold the equity. That rule doesn’t apply to the restricted stock or unexercised options of executives, who technically don’t own the shares. Some lawmakers saw that as an unjustified boon for the CEOs.
Picking Pockets
“It is only fair for these executives, who are picking the pockets of the American taxpayer to the tune of $4 billion, to feel some of the pinch,” said Richard Neal, a Massachusetts Democrat, in a speech on the House floor in 2002.
Argonaut Group Inc., a niche insurer in San Antonio, Texas, was one of the first companies to face the new tax on executives’ equity awards. When it acquired a Bermuda address through an acquisition in 2007, Argonaut accelerated its top executives’ awards to avoid the tax, recording an estimated $10.5 million expense, according to a securities filing. Jazz Pharmaceuticals Inc. of Palo Alto, California, did the same for its executives when it shifted to Ireland through a 2012 merger. CEO Bruce Cozadd got $3.1 million ahead of schedule, a securities filing shows. Both companies declined to comment.
Applied Materials Inc. said on Jan. 21 that it would help Chairman Michael Splinter avoid the tax by granting him $23 million in stock awards ahead of schedule. The Santa Clara, California-based maker of computer-chip equipment plans to buy a Japanese company this year and incorporate in the Netherlands.
Executive Awards
Other top executives will get early vesting on only a portion of their equity and will have to pay taxes on the rest, the filing shows. Some will get extra cash bonuses. The company declined to comment beyond the filing.
Eaton Corp., the Cleveland-based manufacturer of electrical equipment, and Perrigo Co. (PRGO), the over-the-counter drugmaker based in Allegan, Michigan, opted to pay their executives’ tax bills instead.
The cost of these payments can add up because the payments themselves are subject to tax. The total expense was $11.5 million for Eaton’s CEO, A.M. “Sandy” Cutler, and an estimated $9.3 million for Perrigo’s Joseph Papa, according to securities filings. Both companies, which declined to comment, shifted their incorporation to Ireland through acquisitions.
Cost Savings
It’s easy to see why Eaton’s board decided the shift was justified even with the extra compensation cost. Cutler told analysts the Irish address would save $160 million a year because of “cash management and resultant tax benefits.”
The board of Endo Health Solutions Inc. (ENDP), a maker of painkillers in Malvern, Pennsylvania, weighed both options while making plans to acquire a new address in Ireland, the company said in a securities filing. The board opted to pay the tax, estimated at $7.8 million for CEO Rajiv De Silva, in part because “accelerating the vesting of these performance-based awards could result in unearned compensation being paid” if goals weren’t met. Endo declined to comment beyond the filing.
The biggest disclosed payout so far has been to Bisaro at Actavis.
After becoming CEO in 2007, the former lawyer embarked on a series of acquisitions, assembling one of the world’s largest generic drug companies. When bidding for foreign assets against rivals with lower tax rates, he said on a conference call last year, he felt “handicapped.”
Serial Acquirers
For instance, another serial acquirer, Valeant Pharmaceuticals International Inc., is incorporated in Canada and earns much of its profits through subsidiaries in havens such as Bermuda, achieving an effective tax rate of less than 10 percent. Before getting the Irish address last year, company officials said, Actavis’s effective rate was about 28 percent.
Bisaro found a solution last May when he announced the $5 billion acquisition of Warner Chilcott Plc, a smaller company that made birth control and acne treatments and was incorporated in Ireland. He estimated the total cost savings from the takeover at $400 million a year, including the tax savings from using the Irish address as well as job cuts and other operational changes. He said the combined company’s effective tax rate would be about 17 percent and eventually drop further. On its own, Warner Chilcott’s effective rate was about 11 percent to 12 percent.
Not that Bisaro was packing his bags for Dublin.
“Everybody loves New Jersey too much, so nobody’s willing to go,” Bisaro told analysts on a conference call announcing the deal.
Staying Put
In fact, Warner Chilcott’s top executive, Roger Boissonneault, wasn’t in Ireland either. Once an executive at New Jersey’s Warner-Lambert Co., Boissonneault became president of the Chilcott generics division when it spun off in 1996. In the intervening years, takeovers shifted Warner Chilcott’s ultimate corporate parent to Ireland, Northern Ireland, Bermuda, and back to Ireland. Boissonneault stayed put, leading the company from Rockaway, New Jersey.
“I didn’t have to travel far this morning,” Boissonneault told analysts when he visited Bisaro’s office to announce the deal. “Actavis is about five minutes away from our Warner Chilcott headquarters, a little bit further up on Route 80.”
Since becoming CEO, Bisaro has gotten the biggest chunk of his pay in the form of restricted stock, which doesn’t vest until as long as four years after it’s awarded. In the meantime, he can lose it if he misses performance targets or quits. In 2012, restricted stock made up about half of his $8.7 million in compensation.
Restrictions Dropped
Because of the special tax due upon reincorporation, Bisaro’s board decided to drop restrictions on Bisaro’s stock when the Warner Chilcott deal was completed — even some that he’d gotten in March that wasn’t due to vest until 2017. Actavis estimated the value of that stock at $40 million in an August filing and said the total amount for the top five officers was $100.8 million. By the time the deal was completed, the stock had gained an additional 13 percent.
Directors reasoned that the executives shouldn’t have to pay a penalty for a transaction that was in the shareholders’ interest, Actavis said in the filing last year. The board chose to accelerate the executives’ stock awards rather than pay the 15 percent penalty because the former option was partly tax-deductible, the company said.
“It’s important to point out that this approach was overwhelmingly approved by the shareholders,” David Belian, a company spokesman, said in an e-mail. He declined to comment further and didn’t respond to a request to speak with Bisaro.
Unintended Consequences
The accelerated stock award triggered an early tax bill for Bisaro, who reported that about half the stock was withheld for tax purposes. Stock awarded as compensation is usually taxed at the same ordinary income rate as wages. Without the acceleration, he would have faced a similar tax bill in the future, whenever the restrictions lapsed.
The law is a classic example of how Congress’s attempts to tweak corporate behavior through the tax code usually backfire, said Kevin Murphy, a professor at USC’s Marshall School of Business who studies executive compensation. “One thing we can always count on is that there will be lots of unintended consequences — usually costly — for shareholders and for taxpayers.”
Besides rewarding CEOs for corporate tax avoidance, the accelerated payments may upend companies’ compensation plans, said Brian Foley, a consultant in White Plains, New York, who helps companies set pay. Restricted shares are designed to be earned over time. If officers can cash out their shares immediately, they may no longer have as much reason to stay at the company or contribute to its long-term success, he said.
Pickup Sticks
“I want him or her to have skin in the game,” Foley said. Without restrictions on equity awards, “they can pick up their sticks and leave, and they get to take all that vested stuff with them.”
Indeed, Actavis said last year that it would have to make additional payments to retain Bisaro and his team after allowing them to collect their shares ahead of schedule. Shortly after shifting its address to Ireland, Actavis promised Bisaro the $5 million cash retention bonus, contingent on his remaining at the company through 2016.
Congress should overhaul the whole corporate tax system rather than targeting address shifts, said Bret Wells, a professor at the University of Houston Law Center. U.S. rules allow foreign companies to dodge taxes on their American profits, a process called “earnings stripping,” more easily than domestic companies can, he said.
‘Wakeup Call’
“Inversion transactions should be a wakeup call,” Wells said. “They should tell us there’s something wrong with our tax system when it’s more valuable to be foreign-owned than U.S.- owned.”
Two months after Actavis announced the reincorporation to Ireland, Gilbert, the Bank of America analyst, asked on a conference call if Bisaro could comment on the “tax rate land grab that is going on.”
“Unfortunately we have a tax structure in the United States that’s putting companies in the U.S. at a disadvantage,” Bisaro said. “We won’t be at a disadvantage anymore. And I think other companies have to take a look at that. It just makes economic sense.”

It’s less than a month into 2014 and already currency strategists are seeing their top trade recommendations for the year upended by the rout in emerging markets.
Buying Mexico’s peso versus the yen lost about 1 percent within two months of Bank of America Corp. naming the trade one of its top picks in November, with a targeted return of 9.4 percent. Danske Bank A/S exited a trade this month buying Turkey’s lira versus Denmark’s krone at a loss of 2.9 percent. Of 31 major emerging-market currencies, 13 have weakened beyond their median year-end forecasts in Bloomberg analyst surveys.
“Traders either made their year or lost their jobs in the last week,” Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York, said by phone Jan. 24.
Exchange rates tumbled to records across the developing world as a contraction in Chinese manufacturing added to investors’ concern about the impact of the Federal Reserve withdrawing its unprecedented monetary stimulus. Deadly protests from Ukraine to Thailand have worsened the exodus, while Argentina’s unexpected devaluation of its peso last week dented confidence in Latin America.
‘Risk Factors’
“I didn’t see this escalation coming,” Benoit Anne, the head of emerging-market strategy at Societe Generale SA in London, said by phone Jan. 24. “As a strategist, you want to give a directional view of the market, but this is made quite difficult by the large number of risk factors to account for.”
Photographer: Susana Gonzalez/Bloomberg
Exchange rates are tumbling to records across the developing world as a contraction in… Read More
SocGen withdrew Jan. 16 from a trade buying South Africa’s rand versus Hungary’s forint, after losing 1.2 percent in just two weeks, Benoit said.
In abandoning their top picks, firms are reacting to the sharpest slump in emerging-market currencies in five years. A Bloomberg index of the 20 most-traded exchange rates fell 1.2 percent last week, extending its decline over the past year to 9.4 percent, bigger than any annual slide since 2008.
More than a third of the most-traded emerging-market currencies have already fallen below forecasts submitted to Bloomberg. The lira, which dropped to a record today before recovering, is almost 5 percent weaker than the median year-end prediction of 2.2, while Mexico’s peso slipped below Danske Bank A/S’s forecast of 13.45, the most bearish estimate of 41 strategists.
Japan Trades
Bank of America analysts recommended buying the Mexican peso on Nov. 24 as one of their top two Japan-related trades for this year, predicting a rally that would have boosted the currency’s value to 8.4 yen. Instead, the peso slumped 3.5 percent last week to 7.6022 yen in its biggest decline since August. Rinat Rond, a spokeswoman for the lender in New York, declined to comment.
A Danske Bank strategist said Jan. 2 they’d abandoned a trade to buy the lira versus the Danish krone, citing Turkey’s corruption scandal. Last month, the analyst labeled the trade one of their 10 best ideas for 2014.
The slump has been “fun to watch,” Thomas Stolper, the chief currency strategist in London at Goldman Sachs Group Inc., said by phone Jan. 24. “These currencies have fundamental challenges which we’ve been highlighting since the end of 2012.”
Morgan Stanley and UBS AG had also warned investors of the problems developing-nation currencies were likely to face this year. Goldman recommended in December that its clients cut their emerging-market holdings by a third to 6 percent.
China’s Impact
Last week’s selloff started with a Jan. 23 report from HSBC Holdings Plc and Markit Economics Ltd. saying Chinese manufacturing may contract for the first time in six months. This added to concern that growth in the Asian nation, which buys everything from Chile’s copper to South Korea’s cars, is losing momentum.
Hours later, Argentina’s peso started sliding as the central bank pared dollar sales to preserve international reserves that have fallen to a seven-year low. The central bank said the next day it would lift currency controls, spurring the peso to a 15 percent weekly loss.
While Turkey’s lira has rebounded from all-time lows against the dollar and euro, it’s still about 2.5 percent lower versus the greenback than a week ago.
Turkish Rates
Bets the central bank wouldn’t raise interest rates and a corruption scandal embroiling Prime Minister Recep Tayyip Erdogan’s cabinet spurred the lira’s losses, sending it to record lows today of 2.3900 per dollar and 3.2726 to the euro.
The Turkish currency rallied as policy makers scheduled an extraordinary meeting for tomorrow evening, stoking speculation that they will lift rates after all. The lira climbed as much as 2.2 percent, the most since September, to 2.2948 per dollar, and gained 1.7 percent to 3.1396 per euro as of 12:36 p.m. in New York.
While contagion from Argentina’s devaluation may be limited because foreign capital flowing into the country has averaged only about $1 billion in the past four years, the overspill from Turkey could become systemic, according to Citigroup Inc., the second-largest currency trader.
South Africa’s rand dropped beyond 11 per dollar for the first time since 2008 last week, reaching 11.1949 on Jan. 24 amid concern a strike at the world’s biggest platinum mines will dent exports. Other commodity exporters’ currencies, including the Brazilian real, Chilean peso and Russian ruble, also fell on bets demand from China will dry up.
Unusual Times?
“Argentina, Turkey and South Africa led other markets sharply lower in what has the potential to be the most troublesome EM-led correction since 1998,” Michael Shaoul, the New York-based chairman and chief executive officer of Marketfield Asset Management LLC, which oversees $21 billion, wrote in a Jan. 24 client note.
Last week’s declines in the rand and lira were more than 2 1/2 times their normal trading ranges, which statistically occurs about 3 percent of the time, according to data compiled by Bloomberg. JPMorgan Chase & Co.’s Emerging-Market Volatility Index, which measures investor expectations of price swings, jumped to 9.9 percent today, from 8.6 percent a week ago, the biggest increase since June.
Even so, declines like last week’s aren’t so unusual in emerging-market foreign exchange.
Bloomberg’s currencies index is down 2.6 percent over the past month, compared with a 3.7 percent drop in May, when the Fed signaled it could pare the bond purchases that have helped fuel global investment.
Fed Tapering
The gauge fell 2.4 percent in August on speculation tapering was about to start. Last week’s slump coincided with concerns the Fed will quicken the pace of withdrawal at its Jan. 28-29 meeting, after it finally confirmed in December that bond purchases would be cut from $85 billion starting this month.
Thomas Kressin, the head of European foreign-exchange at Pacific Investment Management Co. in Munich, said that once the initial rout is over, currencies including the Mexican peso will recover as investors pick winners and losers.
“It’s a stampede at the moment, so investors didn’t differentiate between quality names and low quality,” Kressin said Jan. 24 by phone. “Once the risk-aversion abates, I think people will start to differentiate again.”
Others say the declines have sown the seeds of further problems for developing nations.
Weaker currencies will push up overseas debt payments for companies, damping the outlook for their economies, Rashique Rahman, the New York-based co-head of foreign-exchange and emerging-market strategy at Morgan Stanley, said Jan. 23.
“With currency weakness being primarily led by capital outflows, the associated weakness in growth could lead to a reassessment of fiscal health,” Rahman said in a note. “This, in our view, is the next stage in the cycle for EM.”

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