- South Africa, to cut or not to cut?
- Asia: some hopes for China
- South Africa: a rate cut would make sense
- Latam: Fiscal jitters in Colombia
Indeed, the reorientation of the economy from focus on corporate efficiency and lower consumer prices towards job creation for the middle class is likely to lead to slower growth and higher inflation in the near term. The approach of the new administration has also broken down the USD smile framework, whereby the USD benefits from the safe haven bid on one side and growth & higher yields on the other.
The key issue to monitor is whether a structural rebalancing of global portfolios heavily overweight US assets will take place. If this were to occur, EM FX could benefit as a diversification bet, after years of divestment away from EMs. For now however, we expect a retracement of the rally in EM FX in Latam and Asia, while EMEA currencies are likely to remain better anchored in light of improving sentiment towards European economies and the EUR.
