Tale of Emerging Market Currencies 2018 and 2019

By Dr. Leila Heckman, PhD, August 27, 2019

Last year, much commentary was on Emerging Market equity and currency declines. The Federal Reserve raised rates four times in 2018. A stronger dollar increases the burden of servicing dollar-denominated debt for Emerging Market companies and sovereigns. As the global economic recovery became more extended, investors became increasingly focused on identifying credit problems that may derail the recovery.

So far in 2019 the commentary has changed. The U.S. Federal Reserve is on pause, and there is a growing consensus that it will start cutting rates. As a sign of less risk aversion towards Emerging Market, Emerging Market currencies and equities have been recovering.

Below is a chart of Emerging Market real effective exchange rates valuations (which take into account trading partners and the movement of currencies) during their trough in 2018 and currently in 2019. Emerging market currencies in countries with substantial vulnerabilities, such as Turkey, have strengthened substantially from their valuation troughs in 2018.

blog CRE

DISCLOSURE: The opinions expressed herein are those of DCM Advisors, LLC (“DCM”) and are subject to change without notice. This material is for informational purposes only and is not financial advice or an offer to sell any product. It should not be assumed that the investment recommendations or decisions we make in the future will be profitable. All investment strategies have the potential for profit or loss.Information was obtained from third party sources which we believe to be reliable but are not guaranteed as to their accuracy or completeness. DCM is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about DCM including its advisory services and fee schedule can be found in Form ADV Part 2, which is available upon request.