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Emerging Markets outlook

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Giving up on the greenback

Fri, Jun 1 2007, 17:05 GMT
by Danske Research EmergingMarkets Team

Danske Bank A/S


China and Kuwait allow for more FX flexibility

  • Over the past month Kuwait has changed its fixed exchange rate policy from a USD peg to a peg against a basket of currencies.
  • The mood in Emerging Markets has remained bullish, driven by a high risk appetite. The USD sensitive currencies in Asia and LATAM have been the big winners, driven by the USD rebound and the appreciation of the renminbi.

Others are likely to follow – especially Russia

  • Other countries are likely to try to dampen inflationary pressures by allowing for faster appreciation against the USD – Russia is likely to be the first major Emerging Market to move in this direction.
  • The continued rise in G3 yields makes us nervous for the sustainability in the Emerging Markets bull run. The political crisis in Turkey is still a major risk for Emerging Markets.

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