That’s a good point, and thinking about this now positioning against bond proxies make a lot of sense to me (JPY, SEK, THB are other candidates). Agree very much with you on BRL, but was wondering what else to add among the majors EM pairs. TRY and EGP see your points but personally a bit uncomfortable with the fact that are both highly exposed to higher oil prices. Of the Rand I liked the fact that positioning has cleaned a lot (see for instance where risk reversals are), can benefit from a recovery in PM (which have also already corrected a lot), has a good domestic story and despite being an oil importer at least exports coal.
Geopolitical shocks like this usually transmit through the dollar and financial conditions first before they show up fully in growth expectations.
That’s often why EMFX reacts earlier than equities. It sits closer to the liquidity and funding channel.
Watching whether the move tightens global financial conditions from here is probably the key regime signal.
Excellent & Sharp Commentary Stephen Sir.
Hey Stephen, great piece - how do you see the ZAR here?
Probably not the first choice. The inflation that’s going to hit EM interrupts the bond market trends, and ZAR was doing well off the back of flows.
That’s a good point, and thinking about this now positioning against bond proxies make a lot of sense to me (JPY, SEK, THB are other candidates). Agree very much with you on BRL, but was wondering what else to add among the majors EM pairs. TRY and EGP see your points but personally a bit uncomfortable with the fact that are both highly exposed to higher oil prices. Of the Rand I liked the fact that positioning has cleaned a lot (see for instance where risk reversals are), can benefit from a recovery in PM (which have also already corrected a lot), has a good domestic story and despite being an oil importer at least exports coal.
Excellent note thanks Stephen
Thanks Michael.