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8 Dec 2015
EM's FX outlook bearish biass back on track- BBH
FXStreet (Guatemala) - While EM FX had gotten some traction in early Q4, we believe that the medium-term bear market is back on track.
Key Quotes:
"The dollar’s appreciation against the majors had stalled in early Q4 as Fed lift-off expectations were pushed back by the markets, but the pendulum is swinging the other way."
"We favor the currencies of Asia and, to a lesser extent, EMEA, while Latin America should continue to underperform."
"Our next EM FX model quarterly update for Q1 2016 will come out at the beginning of January."
"While EM FX had gotten some traction in early Q4, we believe that the medium-term bear market is back on track. Commodity prices have resumed their slide, and this will continue to have significant implications for EM, impacting Latin American economies the most. On the other hand, Asia and Eastern Europe generally benefit from lower commodity prices, and so these regions are likely to continue outperforming.
The dollar’s appreciation against the majors had stalled in early Q4 as Fed lift-off expectations were pushed back by the markets, but the pendulum is swinging the other way after the strong US jobs report last week. As such, we retain a defensive posture with regards to EM, and we recommend investors to focus on fundamental factors.
With a negative EM environment intact (slow global growth, low commodity prices, rising US yields, strong dollar), we feel that high carry will do very little to protect those currencies that are most vulnerable. Indeed, SARB hiked November 19, and USD/ZAR is up almost 6% since then. Similarly, Colombia is in the midst of a tightening cycl, and yet we area seeing new all-time highs for USD/COP, up a staggering 20% since November 4."
Key Quotes:
"The dollar’s appreciation against the majors had stalled in early Q4 as Fed lift-off expectations were pushed back by the markets, but the pendulum is swinging the other way."
"We favor the currencies of Asia and, to a lesser extent, EMEA, while Latin America should continue to underperform."
"Our next EM FX model quarterly update for Q1 2016 will come out at the beginning of January."
"While EM FX had gotten some traction in early Q4, we believe that the medium-term bear market is back on track. Commodity prices have resumed their slide, and this will continue to have significant implications for EM, impacting Latin American economies the most. On the other hand, Asia and Eastern Europe generally benefit from lower commodity prices, and so these regions are likely to continue outperforming.
The dollar’s appreciation against the majors had stalled in early Q4 as Fed lift-off expectations were pushed back by the markets, but the pendulum is swinging the other way after the strong US jobs report last week. As such, we retain a defensive posture with regards to EM, and we recommend investors to focus on fundamental factors.
With a negative EM environment intact (slow global growth, low commodity prices, rising US yields, strong dollar), we feel that high carry will do very little to protect those currencies that are most vulnerable. Indeed, SARB hiked November 19, and USD/ZAR is up almost 6% since then. Similarly, Colombia is in the midst of a tightening cycl, and yet we area seeing new all-time highs for USD/COP, up a staggering 20% since November 4."