Pos t ve sent ment for EM

Anders Svendsen, strateg st, Nordea Bank

Dünya Executive - - REPORT -

We are pos t ve on EM fore gn exchange, apart from the Russ an rouble, but we see some short-term r sks, wh ch may we gh on the Braz l an real, the South Afr can rand and the Turk sh l ra. Rising commodity prices are likely to underpin commodity currencies in the longer term, while our revised forecasts, indicating only limited dollar strengthen­ing at the beginning of this year and continuous weakening of the dollar against euro longer out, confirm our expectatio­ns of a positive emerging markets sentiment in 2018 and the year after. Th s rosy future outlook n the emerg ng market econom es as well as the large undervalua­t on of the EM follow ng years of underperfo­rmance, are some of the reasons why we expect the EM FX to perform well th s year. We are negative on the Brazilian real, as uncertaint­y about pension reform is likely to weigh in the winter months. The South African rand also looks exposed, as investor optimism following Ramaphosa’s victory seems excessive, while further rating downgrades loom on the horizon. The Russian rouble faces problems as carry-trade opportunit­ies are gradually diminishin­g. And the Turkish lira will likely continue its downward spiral as political risks remain high and core inflation is likely to accelerate further, unless the central bank finally responds to it. (January 11)

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