Greg Gibbs, Analyst at Amplifying Global FX Capital, notes that there has been a significant divergence in EM markets in the last month.
Key Quotes
“Latin American assets have recovered significantly, led primarily by a rebound in Brazilian markets on improved investor sentiment towards the likely government. European emerging markets have been weaker in recent weeks, but are well up from September lows, while Asian equities fell sharply to new lows in October.”
“The fall in Asian stocks may reflect the ongoing concern over the strains between China and the US over trade and other issues, a sharp correction in the IT sector, and higher energy prices. However, Asian currencies and equities are also rebounding in the last week.”
“Our indices of emerging currencies by region also show American EM currencies have rebounded more decisively than other regions since September, while Asian currencies made news lows in October; although have recovered somewhat in the last week.”
“Positioning and mean-reversion after deep falls in emerging market assets may tend to support a number of currencies in the near term. This may include Asian currencies, spilling over to the AUD. However, we continue to see risks at elevated levels for the region. Risks include US and China trade relations, stress related to excesses in Chinese credit markets that may limit the government’s capacity to stimulate the economy, the housing market downturn in Australia, and a rising trend in US yields.”
Share
