(Bloomberg) -- For a currency investor looking for in emerging markets, it might be best to avoid some of the top performers, and seek out the more neglected names.
Currencies ranked as cheapest on a monthly real effective exchange rate basis tend to show positive returns against the dollar more frequently than peers over the following year, according to a Bloomberg analysis. China’s yuan, the Chilean peso and the Turkish lira currently fall into that category, while the Thai baht, Indonesian rupiah and Indian rupee -- among the best-performing EM currencies over the past 12 months -- screen as expensive.
In the five-year 18 developing-country study, a currency was judged as cheap if it traded one or more standard deviations below its five-year REER average. Those currencies enjoyed positive returns against the dollar 71% of the time over the following 12 months, compared with 58% of the time on average and 50% for those deemed expensive.
| Currency | Value | Currency | Value |
|---|---|---|---|
| THB | +2.7 | MYR | -0.4 |
| IDR | +1.5 | BRL | -0.5 |
| TWD | +1.3 | HUF | -0.7 |
| INR | +1.3 | SGD | -0.7 |
| RUB | +0.7 | CLP | -1.1 |
| ZAR | +0.4 | COP | -1.1 |
| PLN | +0.4 | TRY | -1.1 |
| MXN | +0.3 | KRW | -1.2 |
| PHP | 0.0 | CNY | -1.4 |
| NOTE: Value is defined as the current standard deviation above or below the five-year average JPMorgan CPI-based real effective exchange rate. | |||
Emerging-market assets have had a roller-coaster ride this year as the U.S.-China trade dispute began taking a toll on global growth, prompting central banks across the world to ease monetary policy. The MSCI Emerging Markets Currency Index has gained 1.4% so far this year, having been up as much as 2.5% and down as much as 1.5%.
NOTE: Simon Flint is an EM macro strategist, who writes for Bloomberg. The observations he makes are his own and not intended as investment advice.
©2019 Bloomberg L.P.
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