Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>The Indonesian rupiah has outperformed most EM currencies, particularly other Asian currencies, and has done so with low volatility in contrast with the rising volatility of the EM FX index.</li>
<li>Looking ahead, headwinds may be appearing with the interest-rate differential working against the currency as the Fed starts raising rates and higher inflation leading to lower real rates.</li>
<li>While the rise in commodity prices is generating trade surpluses for now, the current account may turn negative from positive with a rise in imports accompanying the economy's reopening.</li>
</ul>


The Indonesian rupiah has outperformed most EM currencies, particularly other Asian currencies, and has done so with low volatility in contrast with the rising volatility of the EM FX index.
Looking ahead, headwinds may be appearing with the interest-rate differential working against the currency as the Fed starts raising rates and higher inflation leading to lower real rates.
While the rise in commodity prices is generating trade surpluses for now, the current account may turn negative from positive with a rise in imports accompanying the economy's reopening.


Indonesian Rupiah Shines in Volatile Times

<ul>
<li>I explore the 2021 winners and losers among EM currencies, leading into the discussion on which of these performances were appropriate and which currencies may offer opportunities this year.</li>
<li>The currencies to track this year for opportunities to buy are Chilean peso and Peruvian sol, and to sell are Colombian peso and South African rand. </li>
<li>Among currencies that already look appealing to buy are the Indian rupee and the Thai baht, while the Chinese yuan and the Czech koruna appear expensive.</li>
</ul>


I explore the 2021 winners and losers among EM currencies, leading into the discussion on which of these performances were appropriate and which currencies may offer opportunities this year.
The currencies to track this year for opportunities to buy are Chilean peso and Peruvian sol, and to sell are Colombian peso and South African rand. 
Among currencies that already look appealing to buy are the Indian rupee and the Thai baht, while the Chinese yuan and the Czech koruna appear expensive.


Not All Winners Are Equal: 2021 EM FX Outliers and Implications for 2022

Head of Research and Global Chief Strategist, Steno Research

Andreas Steno

Head of Research and Global Chief Strategist

Macro and Geopolitical Research House

Steno Research

Steno Research is a new macro and geopolitical research house. We are based out of Copenhagen, Denmark, but have an international team and a strong network of sources and partners around the world. The team is lead by Andreas Steno, previous global head of strategy at Nordea Bank, and Mikkel Rosenvold, former chief consultant in the Danish Ministry of Finance.

Cross Asset Strategy

<ul><li>Markets are pricing in heavy cuts for next year as inflation keeps coming in soft, making a soft landing the base case for the bulls, but everything comes at a price.</li><li>But how are assets likely to perform if the market narrative is correct and yields will indeed come down in a continued bull-steepening fashion, which in our view is the most likely scenario in H1 2024?</li><li>We have pulled out some of our cross-asset beta studies from our data-library to provide you with an overview of how assets perform during various yield curve regimes.</li></ul>

Markets are pricing in heavy cuts for next year as inflation keeps coming in soft, making a soft landing the base case for the bulls, but everything comes at a price.But how are assets likely to perform if the market narrative is correct and yields will indeed come down in a continued bull-steepening fashion, which in our view is the most likely scenario in H1 2024?We have pulled out some of our cross-asset beta studies from our data-library to provide you with an overview of how assets perform during various yield curve regimes.

Bull Steepening Watch – Is Lower Yields Really What Risk Assets Want?

<ul>
<li>The Chilean peso has performed well this year but it has still lagged behind its peers and the broad EM currencies on a longer horizon.</li>
<li>The currency has been weighed down by high oil prices, a dovish turn by the central bank, and concerns around the Constitutional Convention and the possibility of new pension withdrawals.</li>
<li>While these concerns are valid, my view is that the currency should outperform, albeit with high volatility, due to its high carry, cheap valuations, and eventually, diminishing political noise.</li>
</ul>


The Chilean peso has performed well this year but it has still lagged behind its peers and the broad EM currencies on a longer horizon.
The currency has been weighed down by high oil prices, a dovish turn by the central bank, and concerns around the Constitutional Convention and the possibility of new pension withdrawals.
While these concerns are valid, my view is that the currency should outperform, albeit with high volatility, due to its high carry, cheap valuations, and eventually, diminishing political noise.


Chilean Peso Is a Buy if One Can Stomach the Volatility

<ul>
<li>Given the current uncertainties stemming from the Fed monetary tightening and Russia's invasion, trading opportunities are creeping up as short-term mispricing tend to occur in such environments.</li>
<li>One such opportunity could be the South African rand, which has outperformed on a year-to-date basis relative to other emerging market currencies.</li>
<li>I see headwinds for the rand: the carry is low in real terms and versus volatility, the current account is set to deteriorate, growth remains a concern and it's expensive.</li>
</ul>


Given the current uncertainties stemming from the Fed monetary tightening and Russia's invasion, trading opportunities are creeping up as short-term mispricing tend to occur in such environments.
One such opportunity could be the South African rand, which has outperformed on a year-to-date basis relative to other emerging market currencies.
I see headwinds for the rand: the carry is low in real terms and versus volatility, the current account is set to deteriorate, growth remains a concern and it's expensive.


South African Rand’s Outperformance Is Overdone

Chile

The Chilean peso is the official currency of the Republic of Chile.  The US dollar is the official currency of the United States of America.

CLP (USDCLP CURNCY)

Indonesian Rupiah Shines in Volatile Times

The Indonesian rupiah has outperformed most other EM currencies but headwinds may be appearing for the currency as the Fed starts raising rates and...

Gautam Jain, PhD, CFA

Not All Winners Are Equal: 2021 EM FX Outliers and Implications for 2022

I explore the 2021 winners and losers among EM currencies, leading into the discussion on which of these performances were appropriate and which...

Gautam Jain, PhD, CFA

Bull Steepening Watch – Is Lower Yields Really What Risk Assets Want?

Let’s run through each asset class to see where to put your eggs if a bull-steepening of the yield curve continues into 2024.

Steno Research

Chilean Peso Is a Buy if One Can Stomach the Volatility

The Chilean peso should outperform in the coming months, albeit with high volatility, due to its high carry, cheap valuations, and eventually,...

Gautam Jain, PhD, CFA

South African Rand’s Outperformance Is Overdone

I see headwinds for the South African rand: the carry is not attractive in real terms or relative to volatility, the current account is set to...

Gautam Jain, PhD, CFA