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US dollar should weaken against EM currencies – HSBC

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 29, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Murat Ulgen, Global Head of Emerging Markets Research at HSBC, suggests that a revival in EM sentiment off the back of a resounding growth recovery would bring the ‘carry trade’ back into vogue.

    Key Quotes

    “This should benefit the high-yielding and/or high-beta currencies such as the Brazilian real (BRL), the South African rand (ZAR), the Turkish lira (TRY), the Indian rupee (INR) and the Indonesia rupiah (IDR). Clearly, stronger growth in China and in EM would boost global commodity prices, including oil, iron ore and copper prices which have been very weak over the past few years. As such, commodity currencies such as the Colombian peso (COP), the Chilean peso (CLP), the Malaysian ringgit (MYR), the Russian rouble (RUB) and the Mexican peso (MXN) should recover, mostly against the US dollar.”

    “Improving risk appetite would also boost flows to EM fixed-income as well, particularly into the high-yielding countries. Brazil, India, Indonesia, Russia, South Africa and Turkey rates will likely attract large inflows at the onset, before investors start to differentiate more based on the inflation and monetary policy outlook of the individual economies.”

    “This scenario would support the equity markets of those EM countries that have been hit hard by weak growth, poor fundamentals, weak commodity prices, or a combination of them. We would favour Brazilian, Russian, Turkish and GCC equities. In the GCC, we would expect Saudi Arabia to be the prime beneficiary. Within developed market equities, sectors and markets with high EM exposure should perform strongly. The European export sector looks well placed to reap the benefit of a renewed emerging market growth story.”
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