Emerging Markets: Brexit raises opportunities to reposition in Ems - TDS
|Research Team at TDS, suggests that the Brexit has caused shockwaves that are still reverberating throughout global financial markets.
Key Quotes
“While the final outcome is largely unknown as to the timing and nature of the agreements that will replace status quo, confidence has already been hit hard.
Emerging Markets have only limited direct exposure to the UK uncertainty, but the risk-off reaction has already caused widespread weakness in the EMFX space. We see evidence that sentiment may be improving now.
We build a basket of long COP, ZAR and MXN (we assign each leg the weight of 1/3) vs short CZK and HUF (each short position weighted 50%) which has a positive carry of 56bps/month and target a 3% return with a stop at -1% (risk-reward at 1:3).
Implications for EM CBs are different. Mexico and South Africa are at risk of hikes as a response to further and unhinged currency weakness, but most other CBs will respond by holding rates or relaxing monetary policy in the coming months.”
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