EM FX: Winners and losers – Nomura

In view of the analysts at Nomura, President-elect Trump’s economic policies, along with numerous other global concerns will remain significant drivers of EM FX over the next few months.

Key Quotes

“We believe some of the biggest losers will be MXN and CNH. We highlight this year’s likely winners and losers and make the following recommendations.”

“Long USD/CNH, targeting 7.15 by end-Q1 (total return of +2.3%). Capital outflows, macroeconomic and policy challenges, external risks and FX valuations remain negative drivers of CNH.”

“Long CAD/MXN, targeting 18.0 by end-Q1 (total return of 9.6%). Mexico is the most exposed to President-elect Trump’s policy risks, while domestic imbalances are growing. By contrast, Canada’s economy seems to be stabilising at the margin, its terms of trade are improving and rate cuts are unlikely to be imminent.”

“Relative outperformers in EM FX include INR and BRL. INR is supported by local macroeconomic fundamentals (growth and reforms) and reduced FX vulnerability. We think BRL is less of a target from the US versus its regional peers, it has a relatively low degree of trade openness, low external debt vulnerability and has high carry.”