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Analysts at Nordea Markets suggests that EM sentiment has taken another dive during the past few weeks and their EM FX spot index is currently down 8% year to date against the USD.

Key Quotes

“Persistent global risk-off environment will likely be the biggest near-term risk for EM FX. Some EM countries are particularly vulnerable to escalating trade tensions between the US and China due to high export dependence.”

“In the medium term, EM FX has a chance to recover if tighter EM financial conditions spill back onto the US economy through EM real activities and convince the Fed to slow its balance sheet shrinkage (recall that India’s central bank governor has already explicitly asked the Fed to slow down). Further out on the horizon, EM FX performance will be differentiated by their relative fundamentals.”