Returns for EM currenc es

Dünya Executive - - REPORT - Phoen x Kalen, strateg st, Soc ete Generale

The current global asset and volatility cycle is playing out very similarly to when the

Fed was tightening in 2004-2007, with subsequent catch-up by other central banks. Risks of a near-term trading correction are flashing yellow. Positionin­g and technicals seem somewhat extended, but the magnitude and duration of the rally are not necessaril­y large, while capital flows are supportive. We discussed that being in the midst of late-cycle dynamics warrants some caution and that 2018 may deliver more modest total returns for currencies. However, the dynamics underway favor a stronger H1 performanc­e than we previously envisioned. Given some notable market moves over the past two months alongside improving fundamenta­ls, we refresh some of our forecasts to be aligned with recent developmen­ts. The most notable change is a switch from a bearish to bullish assessment on the South African rand. Over the next couple of quarters, we expect ZAR and

MXN to deliver the strongest total return performanc­e in emerging markets. Carry trade dynamics will remain favorable as long as volatility is falling and US real yields remain low. (January 26)

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