EM FX: Slow Down, You Move Too Fast – Goldman Sachs
Kamakshya Trivedi, Research Analyst at Goldman Sachs, suggests that
after a few months of rapid appreciation, EM FX is facing n a choppier
“Our updated valuation models indicate that EM FX is less undervalued after the rally and the macro backdrop may be less clearly supportive in the months ahead. EM FX yield / carry still attractive for the medium term and external rebalancing has continued across most EM economies.
Reflecting a shallower US rate hike path, we have adjusted our EM FX forecasts to show a reduced degree of depreciation versus the USD. Among ‘high-yielders’, our forecasts remain most constructive on RUB, are stronger than forwards for INR, more in line with forwards for IDR and BRL, and still more negative than forwards on TRY, ZAR. BRL is an example of the shifting balance between FX and rates in ‘high-yielders’.”