Under pressure

Dünya Executive - - REPORT - Wh n Th n, strateg st, BBH

The dollar ndex (DXY) has pushed back above 97 and seems l kely to eventually test the November 12 h gh near 97.69. Th s has put pressure on emerg ng markets currenc es as well, though some d osyncrat c developmen­ts have allowed some emerg ng market currenc es to claw back part of the r recent losses. We bel eve markets are vastly underest mat ng the Fed’s capac ty to t ghten n 2019. When market expectat ons readjust to a more hawk sh take on the Fed, the dollar rally should resume n force. A h gher U.S. rate outlook w ll be a major headw nd for emerg ng markets, as are ongo ng global trade tens ons and s gns of further slow ng n Ch na. In m d-September, MSCI EM FX traded at ts lowest level s nce last May. It has s nce edged h gher but rema ns near those lows. G ven our negat ve outlook on EM, we bel eve MSCI EM FX w ll eventually test that September low near 1575 and then the Apr l

2017 low near 1568. If the EM sell-off cont nues as we expect, then the March 2017 low near 1546 should come nto focus. Every emerg ng market currency s down aga nst the dollar n 2018. The worst performers year-to-date are the h gh beta group Argent na peso, Turk sh l ra, Braz l an real, Russ an ruble and South Afr can rand. W th U.S. rates l kely to march h gher and trade tens ons st ll ratchet ng up, we bel eve emerg ng market currenc es are l kely to rema n under pressure well nto 2019. We see cont nued d vergences w th n the asset class. In part cular, we see he ghtened pol t cal r sk cont nu ng to we gh on h gh beta group ment oned above. On top of pol t cal r sk, we also bel eve t s very mportant for nvestors to keep focus ng on countryspe­c f c fundamenta­ls. (November 30)

Newspapers in English

Newspapers from Turkey

© PressReader. All rights reserved.