Global Multi-Asset Viewpoint
GMA Viewpoint: EM FX Crisis Playbook

Global Multi-Asset Viewpoint

GMA Viewpoint: EM FX Crisis Playbook


Just as emerging market equities appeared to be exiting a five-year bear market, the U.S. dollar struck in the second quarter of 2018, punishing countries with clear imbalances and the asset class as a whole. Emerging market currencies fell -14% while equities have fallen by over -20% from peak to trough this year.1 In this letter, we consider whether this recent episode of emerging market underperformance could present investment opportunities in the asset class. Analyzing 12 emerging market currency crises in the past 30 years, we present data suggesting that the Argentine and Turkish currencies may present attractive investment opportunities, and that these countries’ U.S. dollar sovereign bonds may become attractive investment opportunities in the next month, but that it is too early to consider investing in their equities.

Head of Global Multi-Asset Team
Managing Director

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1 MSIM GMA Team Analysis; Bloomberg; EM FX = JP Morgan EM Currency Index; EM Equities = MSCI EM Index in USD; as of October 5, 2018.

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