FxWirePro: predominant aspects to be mindful in 2017 to deal with emfx tantrum
Source: FxWire Pro - Geo Politics / 05 Jan 2017 07:51:46 Eastern Standard Time
EM currencies are entering a higher volatility regime, with heightened depreciation pressures through to Q1 2017.
A Trump presidency raises protectionist risk premium and higher US yields are disruptive for the fragile equilibrium in emerging markets.
After a painful sell-off (EM FX depreciating about 6%), opportunities should arise around Q1 to enter bullish EM positions. However, elevated risk premium means that the terminal value for EM FX is weaker than current spot rates.
Through to Q1 2017, our bias will be to opportunistically add bullish dollar risk, but will not preclude tactical opportunities to short dollars when positioning, sentiment, or technicals are stretched.
Investors with a long-term horizon are advised to wait until further depreciation offers attractive entry points for bullish EM exposure.
Through to Q1, currencies sensitive to Trump’s policies and to deterioration in risk sentiment are expected to underperform (MXN, BRL, ZAR, TRY, KRW, TWD, PHP) while those more insulated (INR, IDR, THB, RUB, CLP) should outperform. Selective carry strategies may be appropriate.
Regionally, EMEA (USD crosses) and LATAM will likely suffer at the expense of Asia in Q1, but the reverse is likely as the year progresses.© FxWire Pro 2018. All rights reserved. The FxWire Pro content received through this service is the intellectual property of FxWire Pro or its third party suppliers. Republication or redistribution of content provided by FxWire Pro is expressly prohibited without the prior written consent of FxWire Pro, except for personal and non-commercial use. Neither FxWire Pro nor its third party suppliers shall be liable for any errors, omissions or delays in content, or for any actions taken in reliance thereon.