Return of d osyncrat c r sk
Kamakshya Tr ved ,
There has been a sharper bout of pol t cal pressure on the Mex can peso, South Afr can rand and Turk sh l ra than we ant c pated.
The drawdown n FX and local rates n these h gh-y eld ng markets over the past few weeks has been sharper than the bump er r de we expected, even tak ng nto account the well-flagged r sks from a core-rates selloff. In effect, d osyncrat c pol t cal r sks have returned w th a vengeance n each case, overshadow ng any mprov ng macro developments. Renewed no ses of a US pull-out of NAFTA, n turn g v ng further mpetus to local popul sm, has pushed $/ MXN back above 19; the cont nued d v s ons w th n the rul ng ANC and the resultant f scal sl ppage and potent al for rat ng downgrades have sent $/ZAR back above 14; and $/TRY s above 3.80 as tens ons between Turkey and the US, as well as Germany, show few s gns of rap d de-escalat on. At these levels, each currency s aga n s gn f cantly undervalued on our GSDEER and GSFEER metr cs (roughly by more than 15%.) (Nov. 7)