Recovery of emerging markets

21 March, 2019

Downbeat Fed to encourage further investments into emerging markets


The recovery that emerging markets have managed to build throughout the first quarter of 2019 is set to extend further after the downbeat tone that was presented by the Federal Reserve after its latest monetary policy meeting. Interest rate expectations in the United States will be significantly downgraded after the comments made by Jerome Powell, in which the Fed Chair strongly indicated that interest rates will remain on hold for some time and that it ultimately appears that the Federal Reserve will extend its narrative around the need for “patience” over the coming months.

Pushed back US interest rate expectations will be enough to fuel some unwinding of Dollar positions from a Greenback that remains at historically high levels, and the immediate reaction will be that this benefits the likes of the Euro and Japanese Yen. Weakness in the Dollar will also prove supportive to Gold, but where I see the real opportunities for investors are in emerging markets. This includes both emerging market stocks and emerging market currencies. Returning capital into emerging markets will also be a headline that catches further steam moving forward.

Returning investor capital and inflows into emerging markets is a trend that will catch further popularity throughout the developing world and across different continents. This will stretch across the likes of China, South Africa and Saudi Arabia. We should also not discount the momentum that emerging market currencies should be able to build, when we consider that many of the currencies belonging to the developing world remain significantly weaker than where they were valued in the time before the Fed started monetary tightening four years ago.

I am looking at the prospects of a stronger Indonesian Rupiah, Chinese Yuan and Malaysian Ringgit as a result of the dovish Fed message. The Singapore Dollar will also be encouraged by a softer Greenback, while the South Korean Won will be watched after it has lagged behind its Asian counterparts so far in 2019. When it comes to the African continent I would look for a momentum shift in the South African Rand as a result of reversed interest rate optimism in the United States.

What will be concerning investors behind their trading desks is that it can’t be denied that there is a coordinated downbeat view that is being presented by central banks and senior officials across the globe this year. The Fed have certainly now joined this party by issuing their own need for patience and that global headwinds remain a threat that need to be closely watched.


Source link  
A sea of green across Asian markets

It's a sea of green for Asian equities and currencies on Wednesday, after US President Donald Trump said that he will hold extended...

Excitement in financial markets

The day that investors have been eagerly awaiting in anticipation for at least the past month is finally here! The latest Federal Reserve interest...

Fed messaging key focus for week ahead

Asian currencies began the new week on a mixed note against the US Dollar index, with the DXY holding on to gains around the 97.5 mark...


Asian stocks ease up on risk-on mode

With Asian stocks following Wall Street lower on Thursday, the US-China trade tensions appear to have knocked the wind out of risk-on sails for now...

Dollar rebounds after US-Mexico deal

The US Dollar index (DXY) has rebounded slightly to trade around the 96.7 level at the time of writing, after the May US non-farm payrolls data came in...

Risk sentiment clipped by concerns

It is shaping up to be yet another rough, rocky and unpredictable trading week for financial markets as investors tussle with a number of different themes


Europe Parliament election results

As results from the European Parliament elections continue to trickle in at the time of writing, provisional results show pro-EU parties pushing...

Political risks keep Euro on back foot

It's been a horrid month for Theresa May, as uncertainty around the fate of the UK Prime Minister and her Brexit plans have sent the Pound plummeting...

Offshore Yuan hitting 7 top of headlines

The turn for the worst that has transpired with the unforeseen breakdown in US-China trade relations over the past two weeks has accelerated...

  


Share it on:   or