Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>The US dollar has strengthened this year in line with my expectation, but the surprise has been that EM currencies have performed well despite the dollar strengthening.</li>
<li>The solid EM FX performance is entirely due to Latin American currencies which have performed well due to their very high carry, attractive valuations, and positive political developments.</li>
<li>In the near term, I expect LatAm currencies to continue to perform well but the environment may change as the year progresses.</li>
</ul>


The US dollar has strengthened this year in line with my expectation, but the surprise has been that EM currencies have performed well despite the dollar strengthening.
The solid EM FX performance is entirely due to Latin American currencies which have performed well due to their very high carry, attractive valuations, and positive political developments.
In the near term, I expect LatAm currencies to continue to perform well but the environment may change as the year progresses.


<ul>
<li>In an environment marked by uncertainty with regards to the dollar's next move, EM currencies have been stable and LatAm currencies have outperformed Asia and CEEMEA so far this year.</li>
<li>The strong start for LatAm currencies is partly to make up for their underperformance last year and partly supported by their high carry relative to other currencies.</li>
<li>If risk aversion remains low, this trend should persist but given the uncertainty, it is best to be selective and target relative-value trades to take advantage of differences across countries.</li>
</ul>


In an environment marked by uncertainty with regards to the dollar's next move, EM currencies have been stable and LatAm currencies have outperformed Asia and CEEMEA so far this year.
The strong start for LatAm currencies is partly to make up for their underperformance last year and partly supported by their high carry relative to other currencies.
If risk aversion remains low, this trend should persist but given the uncertainty, it is best to be selective and target relative-value trades to take advantage of differences across countries.


Will Latin American Currencies Continue to Outperform Against Asia and CEEMEA?

<ul>
<li>In my monthly recap note, I provide a performance update of my weekly trade recommendations in emerging markets FX and rates.</li>
<li>Of the total of 31 trade recommendations made so far, I have recommended closing 21 of which 17 were in the money.</li>
<li>I also go over my open trade recommendations as well as those that I have closed recently.</li>
</ul>


In my monthly recap note, I provide a performance update of my weekly trade recommendations in emerging markets FX and rates.
Of the total of 31 trade recommendations made so far, I have recommended closing 21 of which 17 were in the money.
I also go over my open trade recommendations as well as those that I have closed recently.


Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – January 2022

<ul>
<li>The South African rand gave up much of its earlier outperformance towards the end of last year but still ended as one of the year's best performers.</li>
<li>In 2022 though I expect the currency to underperform on the back of a weak economic outlook with the ongoing pandemic adding to previous structural constraints to growth. </li>
<li>In addition, the currency's carry is likely to stay low especially relative to its volatility and the commodity tailwind should fade as the year progresses.</li>
</ul>


The South African rand gave up much of its earlier outperformance towards the end of last year but still ended as one of the year's best performers.
In 2022 though I expect the currency to underperform on the back of a weak economic outlook with the ongoing pandemic adding to previous structural constraints to growth. 
In addition, the currency's carry is likely to stay low especially relative to its volatility and the commodity tailwind should fade as the year progresses.


South African Rand – Watch for Headwinds in 2022

<ul>
<li>I reiterate the risk that the dollar can strengthen in the near term by being on one of the two ends of the dollar smile, thus weighing on EM currencies.</li>
<li>On the positive side, the dollar strengthening should not last since the currency is already expensive in REER terms. Also, long speculative positions in the dollar are already quite heavy.</li>
<li>Since positions tend to follow dollar moves, whenever the dollar starts weakening, the unwinding of long positions can exacerbate the move, making it a supportive environment for EM currencies.</li>
</ul>


I reiterate the risk that the dollar can strengthen in the near term by being on one of the two ends of the dollar smile, thus weighing on EM currencies.
On the positive side, the dollar strengthening should not last since the currency is already expensive in REER terms. Also, long speculative positions in the dollar are already quite heavy.
Since positions tend to follow dollar moves, whenever the dollar starts weakening, the unwinding of long positions can exacerbate the move, making it a supportive environment for EM currencies.


Speculative Long Dollar Positions Highest Since 2019

South Africa

The South African rand is the official currency of The Republic of South Africa.

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Latin American Currencies on Top

The US dollar has strengthened this year in line with my expectation, but the surprise has been that EM currencies have performed well, led by...

Gautam Jain, PhD, CFA

Will Latin American Currencies Continue to Outperform Against Asia and CEEMEA?

If risk aversion remains low, LatAm currencies should continue to outperform but given the uncertainty, it is best to target relative-value trades...

Gautam Jain, PhD, CFA

Alpha Bites: Performance Summary of Trade Recommendations in FX and Rates – January 2022

I provide a performance update of all my trade recommendations along with discussing the open trades. I have closed 21 of the 31 trades recommended...

Gautam Jain, PhD, CFA

South African Rand – Watch for Headwinds in 2022

In 2022, I expect the South African rand to underperform on the back of a weak economic outlook, low carry relative to its volatility, and the...

Gautam Jain, PhD, CFA

Speculative Long Dollar Positions Highest Since 2019

Long speculative positions in the dollar are quite heavy implying that whenever the dollar starts weakening, the unwinding of long positions can...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)