It has been some months since we last published the EM Bond Snapshot. Although the topic remains the same, global risk sentiment has improved significantly recently, mainly due to hopes of monetary easing. The allocation of the Snapshot reflects our latest updated interest and FX forecast published in Augusts’ EM Briefer.
This has generally been positive for the EM currencies and while this trend might continue in the near term, we have a neutral-to-negative FX outlook on a six-month horizon for most of the currencies.
As it has been a while since the last EM Bond Snapshot, there are quite a few changes to our portfolio. We maintain an overweight position in Russia, as we have done for five consecutive times now and move Poland from neutral to overweight. Mexico stays neutral, while South Africa and Hungary are upgraded from underweight to neutral, switching positions with Turkey. The biggest change is for Brazil, which is moved to our biggest underweight, from the biggest overweight in April.
Overweight: Russia (+11.1%) and Poland (+5.1%)
Russia is our largest overweight this time, as we continue to be positive on the Russian economy. Russia also benefits from a positive development in carry, unlike the other countries in the portfolio. We have moved Poland to a 5% overweight, reflecting a somewhat positive outlook for the zloty in the medium term plus the attractive carry.
Neutral: Mexico (+2.5%), Hungary (+0.5%) and South Africa (-0.1%)
In the neutral range we have kept Mexico, bordering on overweight, as the economy continues to do well, while the peso seems to be trading at a fair level after the recent rebound. Here we also have Hungary and South Africa, both of which we were fairly underweight on in April. Although we still view the Hungarian economy as fundamentally very weak, there is attractive carry on the forint in the short term and a benign financial environment that is likely to support it. The outlook for South Africa is still relatively weak and the upgrade to neutral is mostly a consequence of the fact that the rand is trading at a less overvalued level than before the summer and risk to the rand is still clearly on the weaker side.
This has generally been positive for the EM currencies and while this trend might continue in the near term, we have a neutral-to-negative FX outlook on a six-month horizon for most of the currencies.
As it has been a while since the last EM Bond Snapshot, there are quite a few changes to our portfolio. We maintain an overweight position in Russia, as we have done for five consecutive times now and move Poland from neutral to overweight. Mexico stays neutral, while South Africa and Hungary are upgraded from underweight to neutral, switching positions with Turkey. The biggest change is for Brazil, which is moved to our biggest underweight, from the biggest overweight in April.
