Emerging Markets View: Thunderstruck – August 2018

Welcome to the first edition of Emerging Markets View, our new flagship publication on the latest topics of concern for companies with EM FX exposure.

Read the full publication in a PDF version here.

Listen to the webinar recording here.

Emerging markets currencies have sold off massively this year with ARS and TRY in the lead. Domestic politics, trade war rumblings and US sanctions, a stronger USD, and Fed’s balance-sheet reductions make for a fairly bleak outlook in EM FX. That being said, while our EM Traffic Light shows rising risk, this is from still fairly low levels; seven out of 33 EM currencies have a yellow warning light, while the rest are still green. We note that, as many of the risks are political, forecasts are more uncertain than usual, but are generally changing to a more negative view on EM FX.

Topics covered in the publication:

CNY: weak, but not too weak

The Chinese yuan will likely face continued pressure in coming months as the trade war with US persists. We do not expect Beijing to devalue the yuan at present, as this is associated with larger costs than benefits.

RUB: victim of US relations

The RUB will likely remain extremely vulnerable to sanctions rhetoric from the US in the run-up to November mid-term elections. We still do not see approval of sanctions in their toughest form as our base case scenario, but a certain tightening of sanctions is very likely.

PLN: More headwinds

Lukewarm market sentiment keeps pressuring the zloty. Combined with rising political risks and a dovish NBP, the PLN could face more headwinds.

In focus – TRY: A full-blown currency crisis

The lira is pressured on almost every imaginable front. What can stop the TRY from bleeding further? And is Erdogan even willing to take the necessary steps?

FX hedging considerations, the EM Traffic Light and Financial forecasts are also covered in this publication.

Read the full publication in a PDF version here.

Listen to the webinar recording here.

Enjoy!

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