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2 Sep 2015
EM's still under stress - TDS
FXStreet (Guatemala) - Cristian Maggio, Head of Emerging Markets Strategy at TD Securities explained that emerging market currencies are still under stress.
Key Quotes:
"We’re not back at square one as global stocks continue to normalize, which I’ve flagged as a pre-condition to better EMFX valuations. But vol remains elevated, especially for RUB, COP and BRL. Even the currency pairs that are performing relatively well continue to exhibit higher than usual historical vol. There are exceptions though and CNY is one of them."
"After the initial quake caused by the PBoC’s devaluation, the yuan has returned to its low-vol quasi-peg status, which quite remarkably still makes it one of the most attractive currencies from the viewpoint of risk-adjusted carry. More precisely, despite its relatively low carry (but implied yields have risen in the past few weeks), the CNY is still the fourth best currency when you adjust it for vol."
"Just to make things clearer, the BRL has a nominal carry that is enormous compared to the CNY’s (12.8% vs 5.0% annualized), but its much higher vol reduces the real’s attractiveness and puts it behind CNY in a global ranking of currencies."
"The conclusion is that there’s no conclusion. In the EMFX space it looks like positions are more balanced now, but increased mobility of Chinese flows may also be one of the causes for structurally higher volatility in EMFX going forward."
Key Quotes:
"We’re not back at square one as global stocks continue to normalize, which I’ve flagged as a pre-condition to better EMFX valuations. But vol remains elevated, especially for RUB, COP and BRL. Even the currency pairs that are performing relatively well continue to exhibit higher than usual historical vol. There are exceptions though and CNY is one of them."
"After the initial quake caused by the PBoC’s devaluation, the yuan has returned to its low-vol quasi-peg status, which quite remarkably still makes it one of the most attractive currencies from the viewpoint of risk-adjusted carry. More precisely, despite its relatively low carry (but implied yields have risen in the past few weeks), the CNY is still the fourth best currency when you adjust it for vol."
"Just to make things clearer, the BRL has a nominal carry that is enormous compared to the CNY’s (12.8% vs 5.0% annualized), but its much higher vol reduces the real’s attractiveness and puts it behind CNY in a global ranking of currencies."
"The conclusion is that there’s no conclusion. In the EMFX space it looks like positions are more balanced now, but increased mobility of Chinese flows may also be one of the causes for structurally higher volatility in EMFX going forward."