Analysts at Nordea Markets suggest that looking into 2019, the question is whether the factors that weighed in 2018 on EMFX will continue to weigh again because 2018 has so far been a difficult year for emerging markets, as several currencies have suffered significant losses on the back of a rising USD, tighter global liquidity conditions and geopolitical uncertainty.
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“To a large extent, we tend to think so. However, new risk factors could also arise, paving the way for an extension of the current high volatility regime. Thus, according to our EM Traffic Light, fundamental risks in the EM economies are still on the rise, with one important factor being pass-through of this year’s general FX weakness to higher inflation, which in turn should begin to hurt the real economy.”
“In sum, we therefore remain cautious on EM going into 2019, and expect many of the currencies to continue trading close to current historical lows.”
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