30 of 52 currency strategists, around 60%, polled by Reuters expect the emerging-market currencies’ recovery to stay intact in the remainder of the year.
“As long as there is no bad news, EM can grind higher. But how long can this last in the face of a bleak structural outlook? By the summer, an escalation in geopolitical tensions into the US elections is likely to reassert the weak backdrop,” David Hauner, head of emerging markets strategy at BofA, told Reuters. “Sadly, COVID-19 is far from under control in many of the big EMs. Nevertheless, depressed sentiment creates a low bar for positive surprises as economies emerge from the lockdown.”
“The Turkish lira, South African rand, Russian rouble, Brazilian real and the Indian rupee have recovered over 7%, 12%, 17%, 15% and about 2%, respectively, against the dollar from this year’s intraday lows,” Reuters further noted in its report.
Whether Turkey will participate in the rally depends on foreign financial investors, who continue to abandon Turkey. According to YF Invest, FFI sold $1 bn worth of equities, bringing the YTD total to $3.4 bn. The exodus from government bonds reached $6.46 bn over the same period.
However, a rapid decline in Turkey’s CDS premium over the last 15 days and a moderate rally in Treasury’s Euro-bonds suggest that risk appetite is luring foreign interest back to Turkey, which remains one of the most oversold EMs. Barring further political tensions and in the presence of better economic data in June vs May, some foreigners may decide to leave their caution aside and take advantage of the high yields.
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