Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>The South African rand gave up much of its earlier outperformance towards the end of last year but still ended as one of the year's best performers.</li>
<li>In 2022 though I expect the currency to underperform on the back of a weak economic outlook with the ongoing pandemic adding to previous structural constraints to growth. </li>
<li>In addition, the currency's carry is likely to stay low especially relative to its volatility and the commodity tailwind should fade as the year progresses.</li>
</ul>


The South African rand gave up much of its earlier outperformance towards the end of last year but still ended as one of the year's best performers.
In 2022 though I expect the currency to underperform on the back of a weak economic outlook with the ongoing pandemic adding to previous structural constraints to growth. 
In addition, the currency's carry is likely to stay low especially relative to its volatility and the commodity tailwind should fade as the year progresses.


South African Rand – Watch for Headwinds in 2022

<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

<ul>
<li>I reiterate the risk that the dollar can strengthen in the near term by being on one of the two ends of the dollar smile, thus weighing on EM currencies.</li>
<li>On the positive side, the dollar strengthening should not last since the currency is already expensive in REER terms. Also, long speculative positions in the dollar are already quite heavy.</li>
<li>Since positions tend to follow dollar moves, whenever the dollar starts weakening, the unwinding of long positions can exacerbate the move, making it a supportive environment for EM currencies.</li>
</ul>


I reiterate the risk that the dollar can strengthen in the near term by being on one of the two ends of the dollar smile, thus weighing on EM currencies.
On the positive side, the dollar strengthening should not last since the currency is already expensive in REER terms. Also, long speculative positions in the dollar are already quite heavy.
Since positions tend to follow dollar moves, whenever the dollar starts weakening, the unwinding of long positions can exacerbate the move, making it a supportive environment for EM currencies.


Speculative Long Dollar Positions Highest Since 2019

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Thomas Schroeder

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Technical Analysis

<ul>
<li>USD setting up for a fresh rise in EM that will spill over into Asian FX and front run a risk cycle peak for equities in mid-December.</li>
<li>DXY drift sets up a fresh buy. Euro triangle breakout points in focus as well as Sterling's bull wedge.</li>
<li>USD versus ZAR, MXN and RUB near key rally supports. INR, SGD and THB favored USD long plays in Asia.</li>
</ul>


USD setting up for a fresh rise in EM that will spill over into Asian FX and front run a risk cycle peak for equities in mid-December.
DXY drift sets up a fresh buy. Euro triangle breakout points in focus as well as Sterling's bull wedge.
USD versus ZAR, MXN and RUB near key rally supports. INR, SGD and THB favored USD long plays in Asia.


USD/EM Rise to Bleed into Asian FX Ahead of a Risk Turn

<ul>
<li>Since the start of the pandemic, the Brazilian real (BRL) has lagged the broad universe of emerging market currencies but it has outperformed this year, narrowing the gap.</li>
<li>I expect BRL to continue outperforming as real rates should keep rising, the fiscal balance has improved, and there is a potential for a positive surprise on the election front.</li>
<li>The positive view on BRL is against other EM currencies, not the dollar. Also, the timing is critical because asset volatility should start picking up as the election approaches.</li>
</ul>


Since the start of the pandemic, the Brazilian real (BRL) has lagged the broad universe of emerging market currencies but it has outperformed this year, narrowing the gap.
I expect BRL to continue outperforming as real rates should keep rising, the fiscal balance has improved, and there is a potential for a positive surprise on the election front.
The positive view on BRL is against other EM currencies, not the dollar. Also, the timing is critical because asset volatility should start picking up as the election approaches.


Brazilian Real Set to Outperform Other EM Currencies in the Near Term

South Africa

The South African rand is the official currency of The Republic of South Africa.

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South African Rand – Watch for Headwinds in 2022

In 2022, I expect the South African rand to underperform on the back of a weak economic outlook, low carry relative to its volatility, and the...

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

Speculative Long Dollar Positions Highest Since 2019

Long speculative positions in the dollar are quite heavy implying that whenever the dollar starts weakening, the unwinding of long positions can...

Gautam Jain, PhD, CFA

USD/EM Rise to Bleed into Asian FX Ahead of a Risk Turn

USD setting up for a fresh rise in EM that will spill over into Asian FX and front run a risk cycle peak for equities in mid-December.

Thomas Schroeder

Brazilian Real Set to Outperform Other EM Currencies in the Near Term

I expect BRL to continue outperforming in the near term as real rates should keep rising, the fiscal balance has improved, and there is a potential...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)