JPMorgan Sees Buy-the-Dip Moment in Emerging-Market FX Rout

The worst selloff in emerging-market currencies since the beginning of the pandemic is tempting some of the world’s largest money managers to boost their bets on beaten-down securities.

Pierre-Yves Bareau, the London-based head of emerging-market debt at JPMorgan Asset Management, said the case is particularly compelling for commodity-sensitive currencies, which look poised to rebound.

“Wait for some U.S. dollar bounce and buy dips,” he said in an interview.

Bareau is among a cadre of investors who are betting the recent turmoil across developing nations will be a mere blip in an otherwise upbeat backdrop. On Monday, MSCI’s emerging-market currency gauge headed for its biggest decline since March 23. The index, which slid to a four-month low, also fell past its 100-day moving average, suggesting the possibility of additional pain ahead.

JPMorgan Sees Buy-the-Dip Moment in Emerging-Market FX Rout

‘Catch-Up Potential’

Twenty-one of 24 major emerging-market currencies tracked by Bloomberg have now depreciated this year, led by declines in the Brazilian real, Mexican peso and Argentine peso. Only Taiwan’s dollar, Russia’s ruble and China’s yuan have eked out gains thus far.

Still, as a whole, developing-nation currencies have proven relatively resilient to the sharp spike in U.S. Treasury yields, according to Goldman Sachs Group Inc. That’s the result of a better global growth backdrop, stronger commodity prices and improved external balances in developing economies, strategists including Zach Pandl and Kamakshya Trivedi wrote in a report.

They also recommend commodity-linked assets, adding the Russian ruble to their basket of emerging-market currencies that also includes the Mexican peso, South African rand and Indian rupee.

Meantime, the BlackRock Investment Institute, the money manager’s think tank, kept its neutral stance on emerging-market local-currency debt on the prospect of a weaker U.S. dollar as well as easy global monetary policy.

“We see catch-up potential as the asset class has lagged the risk asset recovery,” strategists including Wei Li and Elga Bartsch wrote on Monday.

©2021 Bloomberg L.P.

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