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EM currency remain under pressure despite heavy devaluation of the past month. Investors have focused on foreign debt holdings to pick winner and losers. Foreign debt in EM have rising significantly in the past few years after a long period of decline. With funding cost expected to rise further, countries Turkey and Argentina are in extremely delicate situation. While Mexico, Russia and South Africa are less critical but still worrisome. Yet overall, its unlikely that the situation will spiral in a direct currency crisis. We anticipate that extended volatility in EM countries will further decelerate proving a short term opportune to short vol.
By Peter Rosenstreich
